2008 (10) TMI 52 - AT - Service Tax

In view of definition of input service given u/r 2 of CCR, 2004, held that CENVAT credit of the service tax paid on telephone service received by a manufacturer of excisable goods or provider of output service was available to them as credit - telephone service received on the mobile phones of the respondents, which were operated by their staff in connection with the business of the company, was input service and accordingly the service tax paid thereon was available as credit

Summary

Issues:
1. Stay of operation of the impugned order filed by the Revenue.
2. Allowance of CENVAT credit on input service (telephone service).
3. Interpretation of the definition of 'input service' under Rule 2 of the CENVAT Credit Rules, 2004.

Analysis:
1. The application for stay of operation of the impugned order was filed by the Revenue. However, the Member (Judicial) decided that the appeal itself needed to be finally disposed of at that stage. Therefore, after dismissing the application, the appeal was taken up for consideration.

2. The lower appellate authority had allowed CENVAT credit on input service (telephone service) to the respondents for a specific period and vacated a penalty imposed on them. The Revenue contended that the service received on cellphones used by the company's staff should not be considered as 'input service' for the manufacture of final products. The Department's case was reiterated by the learned SDR. The respondents, through their counsel, argued that previous decisions of the Tribunal supported their position. The definition of 'input service' under Rule 2 of the CENVAT Credit Rules, 2004 was extensively discussed, with various Tribunal decisions cited in support of allowing CENVAT credit for the service tax paid on telephone services used in connection with the business of the company.

3. After examining the definition of 'input service' under Rule 2 of the CENVAT Credit Rules, 2004, it was found that different Benches of the Tribunal had consistently held that CENVAT credit on service tax paid for telephone services used in connection with manufacturing activities or output services was permissible under the Rules. The wide interpretation of 'input service' encompassed services used directly or indirectly in the manufacture of goods or provision of output services. Therefore, the telephone services used by the respondents' staff in their business operations were considered as 'input service,' making the service tax paid eligible for CENVAT credit. The clarification provided in a circular further supported the respondents' position. Consequently, the impugned order was upheld, and the appeal by the Revenue was dismissed.

This detailed analysis of the judgment highlights the issues of stay of operation, CENVAT credit on input service, and the interpretation of the relevant rules, providing a comprehensive understanding of the legal reasoning and decisions involved in the case.