2007 (7) TMI 423 - AT - Service Tax

Department contended that appellant is not entitle for Cenvat credit of input service on telephone on the ground of telephone was not installed in the premises from where the appellant was providing services Issue debatable stay granted partially

Summary

Issues:
1. Interpretation of sub-rules (5) and (6) of Rule 3 of the Service Tax Credit Rules, 2002 regarding availing Service Tax credit on telephone bills.
2. Consideration of the nature of premises for providing output services as a 'Mandap Keeper' and its impact on Cenvat credit eligibility.
3. Applicability of Rule 3(5) in cases where no separate account of input service is maintained for output services subject to Service Tax.

Analysis:
1. The applicant availed Service Tax credit on telephone bills at 35% under Rule 3(5) of the Service Tax Credit Rules, 2002. The authorities denied the credit citing sub-rule (6) of Rule 3, stating that telephones were not installed on the premises where services were provided. However, the Tribunal noted that sub-rule (6) refers to "service provided in relation to telephone connection," suggesting that if the telephone connection extends to the Mandap area, it satisfies the rule's requirements. The Tribunal found the issue debatable, leading to a partial waiver of the pre-deposit amount of Service Tax and penalty, with a directive for the applicant to deposit Rs. 10,000 within six weeks.

2. The Tribunal highlighted the definition of 'Mandap' under Section 65 of the Finance Act, emphasizing that the nature of the premises where services are provided as a 'Mandap Keeper' is crucial. It noted that no separate account was maintained for output services as a 'Mandap Keeper,' allowing the utilization of Service Tax credit under Rule 3(5) for payment of Service Tax. The Commissioner (Appeals) denied the benefit of Rule 3(5) due to telephones being installed at the reception counter, overlooking the possibility of telephone connection extending to the Mandap area, which could satisfy the rule's requirements.

3. Considering the circumstances, the Tribunal directed a partial waiver of the pre-deposit amount, highlighting the debatable nature of the issue. The applicant's case for partial waiver was accepted, with a specific deposit amount and timeline specified for compliance. Failure to deposit the amount within the stipulated time would result in the dismissal of the appeal. The Tribunal disposed of the application accordingly, setting a reporting compliance date for monitoring the deposit.

This detailed analysis of the judgment addresses the interpretation of rules, the impact of premises on credit eligibility, and the Tribunal's decision regarding the waiver of pre-deposit amount, providing a comprehensive understanding of the legal issues involved in the case.