CENVAT credit on mobile phones used for official purposes was admissible; factory installation was not required.

Service tax credit on mobile phones used for official purposes was admissible under the CENVAT Credit Rules, 2004 because the phones had a sufficient nexus with manufacture and business operations. The earlier restriction in the Service Tax Credit Rules, 2002, which denied credit for telephones not installed in factory premises, was not carried forward into the 2004 regime. A later Board clarification dated 23.8.2007 also recognised credit on mobile telephones used in relation to manufacture or output service from 10.9.2004 onwards. Credit could not therefore be denied merely because the phones were not installed in the factory premises.

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Issues: Whether service tax credit was admissible on mobile phone use for official purposes under the CENVAT Credit Rules, 2004, notwithstanding the earlier circular and the fact that the phones were not installed in the factory premises.

Analysis: The credit related to mobile phones used for official purposes and therefore had sufficient nexus with the business of manufacture. The earlier Board circular was issued in the context of the Service Tax Credit Rules, 2002, under which credit was restricted for telephones not installed in the factory premises. That restriction was not carried forward in the CENVAT Credit Rules, 2004. The later Board clarification dated 23.8.2007 recognised that, from 10.9.2004 onwards, credit of service tax paid on mobile telephones was admissible where the phones were used for providing output service or in relation to manufacture. The absence of installation in the factory was not a legally relevant ground to deny credit.

Conclusion: Service tax credit on mobile phone use was admissible and the Revenue's challenge failed.

Final Conclusion: The denial of credit was unsustainable, and the orders allowing CENVAT credit to the assessee were left undisturbed.

Ratio Decidendi: Where mobile phones are used for official purposes in connection with manufacture or output service, credit cannot be denied merely because the phones are not installed in the factory premises, especially after the later regime and clarification removed the earlier restriction.

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