2008 (2) TMI 86 - AT - Service Tax

Credit availed on mobile phones u/r 3(6) by Tour operator for period April to Sept. 2004 held that, since CCR came into force w.e.f. 10.9.04 appellant could not be saddled with any liability in terms of CCR so penalty u/r 15 CCR is set aside for the bills pertaining to period subsequent to 10.9.04 when the CCR came into force, matter requires verification by adjudicating authority but penalty u/s 76 Finance Act is justified as credit is admissible only on telephone installed in premises

Issues:
1. Recovery of service tax credit under Section 73 of the Finance Act, 1994 read with rule 14(6) of the Cenvat Credit rules, 2004.
2. Imposition of penalties under Section 76 of the Finance Act and Rule 15 of the Cenvat Credit Rules, 2004.
3. Interpretation of Rule 3(6) of the Service Tax Credit Rules regarding service tax credit on telephone connections.
4. Applicability of penalties under Section 76 in cases where the person claims benefit of credit.
5. Entitlement to claim credit under the Cenvat Credit Rules, 2004 for bills pertaining to the period after 10.9.2004.

Analysis:
1. The appeal challenged the recovery of service tax credit of Rs.17,528 under Section 73 of the Finance Act, 1994, and rule 14(6) of the Cenvat Credit Rules, 2004, along with the imposition of penalties and interest. The appellant, a tour operator, availed service tax credit for tour operator services provided from mobile phones. However, the Tribunal noted that the Cenvat Credit Rules, 2004, which superseded the Service Tax Credit Rules, 2002, did not have a provision similar to Rule 3(6) of the Service Tax Credit Rules. The Tribunal concluded that service tax credit on output service from mobile phones was not eligible before 10.9.2004, and upheld the recovery of the tax credit and penalties.

2. The Tribunal addressed the imposition of penalties under Section 76 of the Finance Act and Rule 15 of the Cenvat Credit Rules, 2004. It rejected the argument that penalties under Section 76 could not be imposed when a person claims credit, stating that claiming tax credit is linked to the liability to pay service tax. However, the Tribunal found merit in setting aside the penalty under Rule 15 of the Cenvat Credit Rules, 2004, as it was not applicable for the period in dispute (April to September 2004).

3. The interpretation of Rule 3(6) of the Service Tax Credit Rules was crucial in determining the eligibility for service tax credit on telephone connections. The Tribunal emphasized that the benefit of credit was only available for service providers with telephone connections installed in the premises where output services were provided. The Tribunal highlighted that mobile phones were not covered under this rule, as they were not considered installed in any premises. Therefore, the appellant's claim for service tax credit on services provided from mobile phones was rejected.

4. Regarding the applicability of penalties under Section 76, the Tribunal dismissed the argument for waiving penalties, stating that the statute's language did not provide for waiver in cases where the service provider was not entitled to claim credit. The Tribunal held that the appellant could not claim any advantage in terms of liability to pay service tax under Section 76.

5. The issue of entitlement to claim credit under the Cenvat Credit Rules, 2004, for bills pertaining to the period after 10.9.2004 was raised. The Tribunal noted that this was a question of fact raised for the first time and required verification by the adjudicating authority. If the appellant was found entitled to credit for bills post-10.9.2004, consequential remission of penalties would be allowed. The appeal was dismissed with modifications in the impugned orders.

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