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

INDIAN RAYON & INDUSTRIES LTD. Versus COMMR. OF C. EX., BHAVNAGAR

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 - Cenvat - denial of credit of Service Tax paid on Mobile Phones - HELD THAT:- The Rule 4(1) of the Cenvat Credit Rules, 2004 states that credit in respect of inputs may be taken on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service. But no such stipulation regarding receipt of input service, which is separately defined under the Rules, is provided. Sub-Rule (7) of Rule 4 of the Cenvat Credit Rules, 2004 merely provides that Cenvat credit in respect of inputs service shall be allowed on or after the date on which payment is made for the value of input service and the service tax paid or payable is indicated in the invoices, bills or challans. I do not find anywhere in the Rules any provision disallowing credit of service tax paid on mobile phones, which in any case is fast replacing fixed line phones in many establishments. In the absence of any express prohibition, under the new Cenvat Credit Rules, 2004, I am of the view that Service Tax paid on Mobile Phone is available as credit to eligible Service providers of out put service and manufacturers. Accordingly, the impugned order is set aside and the appeal is allowed with consequential benefit to the appellants. 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.