2009 (1) TMI 192 - AT - Service Tax

Cenvat Credit on telephone services mobile phones and landline phones installed by company at residence of executives - In the Excel Crop Care Ltd. case, the Hon ble High Court of Rajasthan held that service tax paid for use of mobile phones was available to the assessee paying the mobile phone bill. Their Lordships held that the ground on which the credit was disallowed namely, the phones were not installed in the factory premises, cannot be termed to be a ground germane to the provisions of the rules relevant for the purpose. In the Indian Rayon and Industries Ltd. case, the Tribunal had held that service tax paid on mobile phones was available as credit to eligible service providers of output service and manufacturers. Excel Crop Care case, Grasim Industries case, Keltech Energies Ltd. case and the Brakes India Ltd. case had followed the ratio of the Tribunal s decision in the Indian Rayon & Industries Ltd. case. Credit allowed.

Summary

Issues:
1. Availment of service tax credit for mobile phones and telephones installed at residential premises.
2. Contravention of Rules 3 and 4 of CENVAT Credit Rules, 2004.
3. Applicability of Circular No. 59/08/2003-S.T.
4. Admissibility of service tax credit for telephone services used by executives.

Analysis:

1. The issue in this case revolves around the availment of service tax credit by M/s. ITC Ltd. for mobile phones and telephones installed at the residential premises of its executives during a specific period. The Circular No. 59/08/2003-S.T. clarified that credit of service tax was allowed only on telephone sets installed in business premises, not for mobile phones. The original authority alleged contravention of Rules 3 and 4 of CENVAT Credit Rules, 2004, demanding a specific amount and imposing penalties.

2. The Commissioner (A) affirmed the original authority's decision, except for the penalty, stating that the telephones used by executives were not input services related to manufacturing excisable goods. Despite the potential business facilitation, the phones were considered perquisites by the management. The argument regarding the circular's applicability during the currency of CCR, 2002, which was superseded by CCR, 2004, was rejected.

3. The learned counsel for the appellants cited various case laws to support their argument, emphasizing the approval of service tax credit for mobile and landline phones used for business purposes at executives' residences. The impugned order was found inconsistent with legal provisions based on the case laws presented, leading to the appeal being allowed.

4. The judgment highlighted the decisions in previous cases, such as Excel Crop Care Ltd., Indian Rayon & Industries Ltd., Grasim Industries, Keltech Energies Ltd., and Brakes India Ltd., where service tax credit for telephone services used by staff at their residences was deemed admissible. The Tribunal's decisions supported the admissibility of such credits as input services, ultimately leading to the vacating of the impugned order and allowing the appeal.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues, arguments presented, and the final decision reached by the Appellate Tribunal CESTAT, Chennai.