2006 (8) TMI 7 - AT - Service Tax

Service Tax - Cenvat - In the absence of any express prohibition, under the Cenvat credit Rules, 2004, service tax paid on mobile phone is available as credit to eligible service providers of output service and manufacturers

Summary

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.