Change is inevitable and so are the clarifications and statements issued by the Ministry of Finance, which at times change more colours than a chameleon. In 2003, the Central Board of Excise and Customs, vide its Circular No. 59/8/2003-S.T., dated 20-6-2003 clarified that as regard to Credit of Service Tax on telephone connection, the same will be allowed only on telephone sets installed in the business premises .
Thus no input credit of the Service Tax paid by the Manufactures and service providers was allowed on the Mobile phones and landline phones installed at the residences of the Directors. But changed colour when in 2007, vide its Master Circular No. 97/8/2007-S.T., dated 23-8-2007 it further clarified that 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 and clarification to this effect was also issued vide Circular No. 59/8/2003-S.T., dated 20-6-2003. However, in the Cenvat Credit Rules, 2004 no such condition has been prescribed and 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. This clarification opened yet another Pandora Box of litigations and demands from the Service Tax department as to whether the said mobile phone is actually used for providing output service or used in or in relation to manufacture of finished goods.
The onus of establishing the nexus between the said Mobile Phone and the Finished Product manufactured by the Company was an uphill Task for all . But the Hon’ble CESTAT in the Case of Grasim Industries verses Commissioner of Central Excise , held a view which came much to the respite of the industries . The Principal Bench CESTAT held that the definition of input service under clause (L) of Rule 2 of the said Rules includes activities relating to business such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal and thus allowed the credit on mobile phones which were used in the activities relating to business. In furtherance to this decision , CESTAT ,Bangalore in the case of Keltech Energies Limited Versus Commissioner Of C. Ex., Mangalore in its Final Order Nos. 44 and 45/2008, dated 9-1-2008 held that as regards the Cenvat credit of Service Tax in case of Mobile phones and landline phones installed by company for business purpose and bills paid by company, the same is to be considered as input services and it also includes those phones which are installed at the Director’s and company officials’ residence. The Hon’ble Tribunal held that the same are entitled for Service Tax credit as bills are paid by company and telephones are used for business purpose in light of the provisions of Rules 2(l) and 3 of Cenvat Credit Rules, 2004.
In light of these recent decisions, in cases where the phone bills are paid by the company , there is no bar on availing Cenvat Credit of the Service Tax paid of the landline phones installed at the residence premises of the staff and Mobile phones used for business purpose .