Case Note & Summary
The Commissioner of Central Excise, Nagpur, appealed against the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) which allowed CENVAT credit of service tax paid on mobile phone services to M/s Ultratech Cement. The assessee had availed CENVAT credit on various input services, including mobile phone service, during 2006-2007. Show cause notices were issued proposing to disallow and recover the credit on mobile phone services, relying on Circular No. 59/8/2003 dated 20th June 2003 issued by the Central Board of Excise and Customs under the Service Tax Credit Rules, 2002, which restricted such credit. The Assistant Commissioner disallowed the credit, but the Commissioner (Appeals) allowed the assessee's appeal. The department appealed to CESTAT, which upheld the Commissioner (Appeals) order. The High Court admitted the appeal on two questions of law: whether CESTAT was correct in holding that credit on mobile phone service is allowable despite the circular and Rule 16(1) of the CENVAT Credit Rules, 2004, and whether the assessee was entitled to credit without establishing that the service was in relation to business activity under Rule 9(5). The court, after hearing both sides, held that the definition of 'input service' under Rule 2(1) of the 2004 Rules is broad and includes services used in relation to business, and mobile phone services are covered. The Board circular, being inconsistent with the statutory rules, is not binding. The court also held that the assessee need not separately prove that the service is in relation to business, as the definition is wide enough. Accordingly, the appeal was dismissed, and the CESTAT order was upheld.
Headnote
A) Central Excise - CENVAT Credit - Input Service - Mobile Phone Service - Rule 3 read with Rule 2(1) of CENVAT Credit Rules, 2004 - The court considered whether credit of service tax paid on mobile phone services is allowable. Held that the definition of 'input service' under Rule 2(1) is broad and includes services used in relation to business, and mobile phone services are covered. The Board circular restricting credit is not binding as it conflicts with the statutory rules. (Paras 1-2) B) Central Excise - CENVAT Credit - Board Circular - Rule 16(1) of CENVAT Credit Rules, 2004 - The court examined whether Circular No. 59/8/2003 remains valid under Rule 16(1). Held that Rule 16(1) saves circulars only to the extent they are not inconsistent with the 2004 Rules. Since the circular restricts credit contrary to the rules, it is not binding. (Paras 1-2) C) Central Excise - CENVAT Credit - Burden of Proof - Rule 9(5) of CENVAT Credit Rules, 2004 - The court addressed whether the assessee must establish that mobile phone services are in relation to business activity. Held that the definition of 'input service' is wide and does not require separate proof; the service is presumed to be in relation to business unless rebutted. (Para 2)
Issue of Consideration
Whether CENVAT credit of service tax paid on mobile phone services is allowable under the CENVAT Credit Rules, 2004, despite a Board circular restricting such credit, and whether the assessee must establish that the service is in relation to business activity under Rule 9(5).
Final Decision
Appeal dismissed. CESTAT order upheld. CENVAT credit on mobile phone service tax is allowable.
Law Points
- CENVAT Credit Rules
- 2004
- Rule 3
- Rule 2(1)
- Rule 9(5)
- Rule 16(1)
- Circular No. 59/8/2003
- Service Tax Credit Rules
- 2002
- input service
- mobile phone service
- business activity
