Cenvat Credit on Mobile Phones

[Dr. Sanjiv Agarwal]

Service providers use mobile phones to provide taxable services to their customers and clients but are generally confused as to whether cenvat credit can be availed in respect of mobile phones. 

The credit on mobile/cell phones being input service shall be allowed as there is no restriction in the existing Cenvat Credit Rules, 2004 on taking  Cenvat credit on mobile phones (unlike earlier restriction in Service Tax Credit Rules, 2002).

CBEC has clarified as follows vide Circular No 97/8/2007 dated 23.8.2007 -

A doubt has been raised regarding admissibility of Cenvat credit on service tax paid in respect of mobile phones. In the Service Tax Credit Rules, 2002, it was prescribed that credit of service tax was admissible only on telephone connection installed in the business premises. A clarification to this effect was also issued vide circular No. 59/8/2003-ST, dated 20.6.2003, in the context of the Service Tax Credit Rules, 2002. However, in the Cenvat Credit Rules, 2004 no such condition has been prescribed. Therefore, w.e.f. 10.9.2004, credit of service tax paid in respect of mobile telephone service is admissible, provided the mobile phone is used for providing output service or used in or in relation to manufacture of finished goods.

Pune Commissionerate-I in its RAC meeting dated 27.9.2006 also observed that such credit shall be allowed provided it meets all the tests of being an input service and the person availing Cenvat credit of service tax paid on mobile phones has to prove that he satisfies the conditions of using for providing the output service or manufacturing the final products. It may also be noted that in terms of rule 16 of Cenvat Credit Rules, 2004, old Service Tax Credit Rules of 2002 which are consistent with new Cenvat Credit Rules, 2004 alone are to be complied with and hold good in new regime. If any of such rules have been omitted in Cenvat Rules, the same cannot be considered to be valid.

In India Rayon Industries Ltd. v. CCE, Bhavnagar 2006 -TMI - 620 - CESTAT, MUMBAI, it was held that service tax credit is available on mobile phones. Board Circular dated 20.06.2003 cannot be pressed into service in the context of new Cenvat Credit Rules, 2004 as there is no stipulation in rule 4(1) or 4(7) expressly prohibiting such credit availment.

In Vasavandatta Cement v CCE, Belgaum 2008 -TMI - 2521 - CESTAT, BANGALORE, matter was remanded back to verify use of mobile phones for providing output service or use in relation to manufacture and reconsider the claim. In Excel Crop Care Ltd v CCE, Ahmedabad  2007 -TMI - 1456 - CESTAT, Ahmedabad, mobile phones used by employees and officers of company and tax paid thereon has been held to be admissible for Cenvat credit (Relied upon India Rayon Industries Ltd. v. CCE, Bhavnagar 2006 -TMI - 620 - CESTAT, MUMBAI In  Maini Precision Products Pvt Ltd v CST, Bangalore 2008 - TMI - 30421 - CESTAT BANGLORE, it was held that allowing Cenvat credit on mobile phones has been fully settled in case of Indian Rayon & Industries Ltd and as such impugned order was held to be not legal and proper and set aside.

In Force Motors Ltd v CCE, Pune- I - 2008 -TMI - 30340 - CESTAT, MUMBAI, it was held that credit admissibility on mobile phone is allowed in view of CBCE Circular No 96/ 8/2007 and Cestat's decision in Indian Rayon case (supra).

In Grasim Industries v CCE, Jaipur- II  - 2008 -TMI - 30053 - CESTAT, NEW DELHI, it was held that Cenvat credit on use of mobile phone was admissible as it was covered under the definition of input service relying on similar judgment in Indian rayon case

In International Testing Centre v CCE, , Panchkula, - 2008 -TMI - 4010 - CESTAT, NEW DELHI,  where Cenvat credit was taken by the provider on personal phone installed at the residence of assessee, it was held that it can not be laid down that as a rule, telephone services installed at the residence can not be used for business or professional purpose .

It can therefore, be argued that cenvat credit on mobile phones can be availed. In respect of residential phones, it should be used for the purpose of output service and as such, it can not be denied as a rule.