Telephone credit admissibility depends on business use; residential line credit was disallowed and penalty reduced.

Service tax credit on telephone bills was admissible only where the telephone was installed and used at the business premises for the testing activity. Credit relating to the proprietor's residential telephone was disallowed, while credit relating to telephones at the business premises was allowed. Because part of the credit was wrongly taken, penalty remained sustainable, but it had to be confined to the inadmissible portion; the penalty was reduced accordingly.

---

---

Issues: Whether service tax credit on telephone bills was admissible when the telephone was installed at the proprietor's residence, when the assessee also had business premises, and whether the penalty required reduction.

Analysis: Credit is admissible only to the extent the telephone was installed and used at the business premises where the testing activity was carried on. Credit on bills relating to the residential telephone was not admissible, while credit on bills for telephones installed at the business premises was admissible. Since part of the credit was wrongly availed, penalty was sustainable, but the quantum had to reflect the limited amount of inadmissible credit.

Conclusion: The credit relating to the residential telephone was disallowed, credit relating to the business-premises telephones was allowed, and the penalty was reduced to Rs. 2,000.

---