CENVAT Credit on Mobile Phones
[Submitted by Amrut, CA student, Nagpur,
Maharashtra]
JUNE 19, 2008
Dear friends,
My viewpoints regarding service tax credit on telephone services…,
Cenvat Credit is allowed to output service provider in respect of service tax paid on input services, which are consumed in providing output service.
It is 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 to me Cenvat credit is available on mobile bills also. I am supporting my viewpoint by following two arguments
Argument: 1
Rule 3(6) of erstwhile Service Tax Credit Rules, 2002 read as:
"Service tax credit on the service provided in relation to telephone connection shall be allowed only in respect of such telephone connections which are installed in the premises from where output service is provided."
The Service Tax Credit Rules, 2002 has been substituted by CENVAT Credit Rules, 2004 vide notification no. 23/2004-CE (NT), dated 10-09-2004. The new Rules do not contain any prohibition to take credit of service tax paid on mobile phone. Hence, Cenvat credit on mobile phone is available i.e. 10-09-2004.
Argument: 2
"Indian Rayon & Industries Ltd. vs. CCE Bhavnagar 2006 (4) STR 79 (Tri-Mumbai)",
The Tribunal Held that service tax paid on mobile phone is available as credit to eligible service providers/manufacturers in the absence of any express prohibition under CENVAT Credit Rules, 2004. It is further held that Board's Circular No. 59/8/2003-ST dated 20-06-2003 was relevant only under the erstwhile Service Tax Credit Rules, 2002 and can not be made applicable to CENVAT Credit Rules, 2004
Department’s clarification on the Matter…
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.
Input service distributor is an office or premises of the manufacturer or taxable service provider which receives bills/invoices etc., of input services. The input service distributor can distribute the eligible credit to any unit of the manufacturer or any premises/office of taxable service provider.
Conclusion…
Having regard to the clarification, it can be concluded that the credit of service tax paid in respect of input services, i.e. prescribed telephone service is admissible, provided such telephone services are used and installed in the business premises for providing output service or used in or in relation to manufacture of finished goods.
Please take the appropriate steps in the context of above clarification whether to avail or not to avail the credit in respect of service tax paid on telephone(s) installed at residence of employee, at company's hospital and at guest house of the company. It is to be noted here that the direct nexus/ connection of input services and respective output services/products can be established.
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