2009 (6) TMI 81 - AT - Service Tax

High Court affirms CENVAT credit for service tax on mobile phone services used in manufacturing.

COMMR. OF C. EX., THANE-II/NAGPUR Versus AXIOM IMPEX INTERNATIONAL LTD.

The High Court upheld the lower appellate authority's decision, affirming the admissibility of CENVAT credit for service tax paid on mobile phone services ... Input Service – Cenvat Credit – Mobile phones – not installed in the premises - As per the definition of “input service” given under Rule 2(l) of the CENVAT Credit Rules, 2004, any service used, directly or indirectly, in or in relation to the manufacture of the final products or the clearance of such goods from factory is an input service. In terms of the inclusive definition, any such service as may be shown to be connected with the business activity of output service provider or a manufacturer, would also qualify to be “input service”. In this view of the matter, mobile phone service used by the respondents’ employees/workers in their premises for purposes connected with the manufacture/clearance of the final products should be held to be “input service” and, therefore, CENVAT credit of the service tax paid on such service must be admissible to the respondents. Issues:Admissibility of CENVAT credit for service tax paid on mobile phone service.Analysis:1. The central issue in the appeals was whether the respondents were entitled to claim CENVAT credit for the service tax paid on mobile phone service for utilizing it in the payment of duty on their final products during the relevant periods in dispute. The lower appellate authority had allowed the credit for specific amounts for different periods, relying on previous decisions and the Tribunal's judgment in Indian Rayon Industries Ltd. v. CCE, Bhavnagar.2. The department contended that they had filed an appeal against the Tribunal's decision in the Indian Rayon Industries case, which was pending before the High Court of Gujarat. They argued that the mobile phones in question were not used for providing output service or in the manufacture of finished goods, hence the service tax credit should not be available to the respondents.3. On the contrary, the counsel for the respondents relied on various judgments, including Indian Rayon Industries Ltd., CCE v. Steelcast Ltd., and CCE v. Excel Crop Care Ltd. The High Court had held in the case of Excel Crop Care Ltd. that denial of credit on telephone service due to its location not being in the factory premises was irrelevant. The Tribunal's decision in Indian Rayon Industries was widely followed and held that service tax paid on mobile phones was eligible as CENVAT credit for output service providers and manufacturers.4. The Member (J) analyzed the submissions and case laws presented. Referring to the definition of 'input service' under the CENVAT Credit Rules, any service used directly or indirectly in relation to the manufacture or clearance of final products qualifies as an input service. Therefore, if the mobile phone service was used by the respondents' employees for activities connected to the manufacture or clearance of final products, it should be considered an 'input service,' making the CENVAT credit admissible to the respondents.5. Consequently, the appellate Commissioners' orders were upheld, and the appeals by the Revenue were dismissed. The judgment affirmed the admissibility of CENVAT credit for the service tax paid on mobile phone service when used in activities related to the manufacture or clearance of final products.