2006 (8) TMI 7 - AT - Service Tax

Cenvat credit allowed for service tax on mobile phones; Rule 4(1) and Rule 4(7) permit input service credit

CESTAT, Mumbai held that under the Cenvat Credit Rules, 2004 there is no provision prohibiting credit of service tax paid on mobile phones; Rule 4(1) ... Service Tax credit on Mobile Phones - Cenvat Credit Rules, 2004 - input service - absence of express prohibition - Circulars cannot override later statutory rulesService Tax credit on Mobile Phones - Cenvat Credit Rules, 2004 - input service - Circulars cannot override later statutory rules - Whether Service Tax paid on Mobile Phones is admissible as Cenvat credit under the Cenvat Credit Rules, 2004 for the period December, 2004 to February, 2005, notwithstanding an earlier circular issued under the 2002 Rules. - HELD THAT: - The impugned denial rested on a Circular dated 20-6-2003 issued in the context of the Service Tax Credit Rules, 2002, which limited credit to telephones installed in the premises of the service provider. The Cenvat Credit Rules, 2004, applicable during the material period (December, 2004 to February, 2005), do not contain a corresponding restriction disallowing credit for Mobile Phones. Rule 4(1) of the 2004 Rules prescribes conditions for credit in respect of inputs but does not impose a requirement analogous to installation in the provider's premises for input services. Sub rule (7) of Rule 4 permits Cenvat credit for input services on or after payment where the service tax is indicated in invoices, bills or challans. In the absence of any express prohibition in the 2004 Rules, the Circular issued under the earlier 2002 Rules cannot be pressed into service to deny credit under the later Rules. Applying these provisions to the facts, Service Tax paid on Mobile Phones is available as credit to eligible providers of output service and manufacturers for the stated period. [Paras 3, 4, 5]The impugned order denying credit is set aside; Service Tax paid on Mobile Phones is allowable as Cenvat credit and the appeal is allowed with consequential benefit to the appellants.Final Conclusion: The Tribunal admitted the appeal, waived pre-deposit, and on merits ruled that under the Cenvat Credit Rules, 2004 there is no prohibition on availing credit for Service Tax paid on Mobile Phones for the period December, 2004 to February, 2005; the earlier Circular issued under the 2002 Rules cannot be used to deny such credit, and the impugned order is set aside with consequential benefit. Issues:1. Denial of credit of Service Tax on Mobile Phones provided to employees for business transactions.Analysis:The appellants sought credit of Service Tax paid on Mobile Phones provided to employees for business transactions. The advocate representing the appellants argued that under the Service Tax Credit Rules, 2002, credit was allowed only for telephone connections installed in the premises where the output service is provided. He highlighted that the Circular No. 59/8/2003 clarified that Mobile Phones were not eligible for Service Tax credit. However, under the Cenvat Credit Rules, 2004, there was no such restriction on Mobile Phones, and they fell under the definition of input service. The advocate emphasized the importance of the issue despite the small amount involved and requested the appeal to be admitted.The Tribunal admitted the appeal and waived the pre-deposit requirement based on the submissions made and legal provisions cited. It was decided to take up the appeal for a decision.The Tribunal noted that the old Circular from 2003, relied upon by the lower appellate authority to deny the credit, was relevant under the old Service Tax Credit Rules, 2002, which had specific requirements for telephone installations. However, the new Cenvat Credit Rules, 2004, did not have such restrictions, making the old Circular inapplicable. The lower appellate authority was expected to decide based on the legal provisions in force during the relevant period.Regarding the Cenvat Credit Rules, 2004, it was observed that while Rule 4(1) allowed credit for inputs received in the factory or premises, there was no stipulation for input services. Sub-Rule (7) of Rule 4 focused on payment for input services to avail Cenvat credit, without any provision disallowing credit for Service Tax paid on Mobile Phones. The Tribunal highlighted the increasing use of Mobile Phones over fixed lines in establishments, supporting the availability of Service Tax credit on Mobile Phones under the new rules.Consequently, the Tribunal set aside the impugned order, allowing the appeal and granting consequential benefits to the appellants, as there was no express prohibition under the Cenvat Credit Rules, 2004, for claiming Service Tax credit on Mobile Phones.