CENVAT Credit on mobile phones

Atul Jain | Last updated: 05 July 2007

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Although some argue that CENVAT credit is not allowed on mobile phone service tax due to a 2003 Circular, the CENVAT Credit Rules, 2004 actually permit it. This is because the 2004 Rules replaced the older 2002 Rules and contain no express prohibition against claiming credit on mobile bills. Furthermore, a key Tribunal ruling in the Indian Rayon case confirmed that the restrictive 2003 Circular does not apply to the 2004 Rules, making eligible service providers and manufacturers fully entitled to this credit.

CENVAT credit is allowed to output service providers in respect of input services consumed by them used in providing output service. It is often argued that CENVAT Credit is not allowed on Service Tax paid on mobile phones. Argument is backed by Circular No. 59/8/2003 dated 20.06.2003. According

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FAQ :

Yes, CENVAT credit is allowed on service tax paid on mobile phones for eligible output service providers and manufacturers.

The argument against the credit is based on Circular No. 59/8/2003 dated June 20, 2003, which restricted the credit.

The Tribunal held that the 2003 Circular was only relevant under the old Service Tax Credit Rules, 2002, and cannot be applied to the CENVAT Credit Rules, 2004.

The case of 'Indian Rayon & Industries Ltd. vs. CCE Bhavnagar 2006 (4) STR 79 (Tri-Mumbai)' supports this, where the Tribunal ruled that credit is available in the absence of an express prohibition.

The CENVAT Credit Rules, 2004 substituted the older 2002 Rules via notification on September 10, 2004.