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CENVAT CREDIT ON TELEPHONES

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CENVAT CREDIT ON TELEPHONES
Dr. Sanjiv Agarwal By: Dr. Sanjiv Agarwal
August 23, 2009
All Articles by: Dr. Sanjiv Agarwal       View Profile
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Previously under Service Tax Credit Rules, 2002, service tax credit in relation to the telephone connection was allowed only if such telephone connections were installed in the business premises from where output services were provided. However, under CENVAT Credit Rules, 2004, no such rule exists. As such, it is not required to be installed in the business premises from where output services is provided. For mobile phones, it is felt that the assessee can claim such costs as input service cost provided that it is proved to the satisfaction of Revenue authorities that such expenditure is for carrying out business or for rendering of taxable output service. In the absence of any prohibition, it is felt that such credit will be allowed.

CENVAT Credit in relation to Telephone Connections/Mobile Phones

CENVAT Credit would be available only when input service has been used or consumed for manufacture of output goods or in rendering of output services. As per rule 9(2), name and address of service receiver is not a essential requirement in the bill. As such, it appears that there should not be any problem in availing credit. Moreover, there is no specific rule which prohibits CENVAT credit in such cases.

Under Rule 9(2), mention of registration number is not an essential condition for availing Cenvat credit. Though service provider may be penalized for issuing an improper invoice, a receiver of service i.e., telephone subscriber cannot be denied CENVAT credit merely because service tax registration number of service provider is missing from the invoice. Service availers should insist on such mention of registration number, both from Government and private service providers.

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). In Indian 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 20.6.2003 cannot be pressed into service in the context of Cenvat Credit Rules, 2004 as there is no stipulation in Rule 4(1) or 4(7) expressly prohibiting such credit availment.

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 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 Indian Rayon Industries Ltd. v. CCE, Bhavnagar [2006 -TMI - 620 - CESTAT, MUMBAI]

In CCE, Chennai-III V Greaves Cotton Ltd [2009 -TMI - 33811 - CESTAT CHENNAI]. credit of service tax paid towards telephone service for use of mobile phones and landlines installed in residence of managers of assessee company was held to be admissible, even if installed outside the factory [ Relied on CCE v Excel Crop Care Ltd. [2008 -TMI - 31579 - HIGH COURT GUJARAT].

Mobile phones used by whole time directors in relation to business activities of company  were allowed for cenvat purpose [CCE v BSBK Pvt Ltd 2009 -TMI - 32789 - CESTAT, NEW DELHI].

Service tax paid by assessee manufacturer to mobile phone service provider, on mobile phones provided to its employees, is an input service and credit thereof can be utilized for payment of service tax [ CCE v Excel Crop Care Ltd 2007 -TMI - 1456 - CESTAT, Ahmedabad]

Cenvat Credit allowed on mobile phones used in relation to manufacturer of final product where they were standing in the name of company and used by employee. The incidental use of phones for personal work can not by itself be ground for denying cenvat credit [CCE, Bangalore -I versus Conzerve Systems Pvt Ltd 2009 -TMI - 32669 - CESTAT, BANGALORE]

Telephone service- mobile service as well as landline phones installed by the company for business purposes is to be considered as input services, eligible for the benefit of cenvat credit [Keltech Energies Ltd v CCE, Mangalore [2008 -TMI - 4051 - CESTAT BANGALORE]

Mobile phones used for office purpose constitute input service and service tax credit was admissible [CCE, Chennai v Showa Engineering Ltd/ Brakes India Ltd [2009 -TMI - 31940 - CESTAT CHENNAI]; CCE, Allahabad v Hindaco Industries Ltd [2009 -TMI - 33555 - CESTAT NEW DELHI]; CCE, Jaipur-II v J.K. Cement Works [2009 -TMI - 33571 - CESTAT NEW DELHI]

Other favorable decisions

Grasim Industries Ltd v CCE [2008 -TMI - 30053 - CESTAT, NEW DELHI]

Indian Rayon Industries Ltd. v. CCE, Bhavnagar [2006 -TMI - 620 - CESTAT, MUMBAI]

Maini Precision Products Pvt Ltd v CCE [2008 -TMI - 30421 - CESTAT BANGLORE]

Vikram Ispat v CCE, Raigad [2009 -TMI - 34136 - CESTAT, MUMBAI]

CCE (A-II) Bangalore v T.G. Kirloskar Automotive Pvt. Ltd. [2009 -TMI - 32395 - CESTAT, BANGALORE]

ITC Ltd. v CCE & CE , Salem [2009 -TMI - 33960 - CESTAT, CHENNAI]

Assessee was entitled to claim cenvat credit on mobile phones in view of Indian Rayon's judgment (Maini Precision Products Pvt Ltd v. CST, Bangalore [2008 -TMI - 30421 - CESTAT BANGLORE]

It may be noted that basic test for claiming cenvat credit would be that it should be an input service. So long as, use of telephone at residence can be justified as a input in performances of output service, it is immaterial whether the phone is installed at residence or else where.

In International Testing Centre v CCE,  Panchkula [2008 -TMI - 4010 - CESTAT, NEW DELHI], it was held that cenvat credit would be admissible only in respect of telephones installed at business premises and not at residence. Also, Cenvat credit availed on payment against telephone bills installed in  the name of husband of assessee were held to be inadmissible.

 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'.

It is expected that authorities should appreciate the evidence placed before them as to what amount charged under the telephone bills was attributable to taxable service provided for which CENVAT credit was taken as input service. Thus as a rule, cenvat credit on telephones used at home cannot be denied.

 

 

By: Dr. Sanjiv Agarwal - August 23, 2009

 

Discussions to this article

 

Dear Sir. This ia a very goods article, providining all legal provisions, with respect availment of Service Tax on Telephone Service. I just wanted to know, whethere, is any of the decision by you, are on larger Bench of CESTAT. Regards. DILIP DARJI.
By: Dilip Darji
Dated: August 24, 2009

 

 

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