2008 (7) TMI 160 - HC - Service Tax

Input credit on mobile services - On a plain reading of Rule 2(l)(i), it is apparent that the mobile service provider, who is liable to pay service tax, and recovers the same by adding such service tax in his bill, is the person providing taxable service and is rendering output service so as to constitute input service in hands of respondent assessee credit not deniable on ground that phones were not installed in the factory premises no question of law arise revenue s appeal dismissed

Summary

Issues:
1. Entitlement to Cenvat credit on mobile phone services.
2. Interpretation of 'input service' under Cenvat Credit Rules, 2004.
3. Applicability of Circular No.59/8/2003 in relation to Cenvat Credit Rules, 2004.
4. Establishing the relation of service tax paid on mobile phone services to business activity.
5. Definition and scope of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004.

Entitlement to Cenvat credit on mobile phone services:
The appellant, Revenue, questioned the Tribunal's decision to allow input credit on mobile services to the respondent-assessee. The dispute revolved around the assessee availing Cenvat credit of Service Tax paid on mobile phone services for phones used by employees and officers. The appellant contended that mobile phones not installed in the factory premises could not be considered 'input service' as per Circular No.59/8/2003. However, the Tribunal, relying on its decision in a previous case, permitted the credit.

Interpretation of 'input service' under Cenvat Credit Rules, 2004:
The appellant argued that the definition of 'input service' under Rule 2(l) did not encompass the service in question, making it ineligible for credit under Rule 3. The rule defines 'input service' as any service used by a provider for providing an output service or by the manufacturer directly or indirectly in relation to manufacturing final products. The court emphasized that the activities of staff using mobile phones were related to the business of the assessee, thus falling under the definition.

Applicability of Circular No.59/8/2003 in relation to Cenvat Credit Rules, 2004:
The appellant rejected the assessee's argument that Circular No.59/8/2003 was not applicable to Cenvat Credit Rules, 2004. The court noted that the circular's context was different but upheld the Tribunal's decision based on the Rules' provisions and the nature of the service provided by the mobile service provider.

Establishing the relation of service tax paid on mobile phone services to business activity:
In another case, the Tribunal had questioned the establishment of the credit's relation to the business activity of the assessee. The court highlighted the importance of proving this connection for claiming Cenvat credit under the Rules.

Definition and scope of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004:
The court analyzed the definitions of 'input service,' 'output service,' and 'provider of taxable service' under the Rules. It clarified that the mobile service provider, by paying and recovering service tax, was providing a taxable service constituting 'input service' for the assessee. The court dismissed the appeal, stating that the disallowance of credit based on phone installation location was irrelevant to the Rules' provisions.