Service tax on mobile phones - can credit be availed?
“In regard to credit of service tax on telephone connection, queries have been raised as to whether service tax credit would be admissible on telephone sets installed only in the business premises. The answer is in the affirmative, and credit will be allowed only on telephone sets installed in the business premises. Mobile phones are not covered” - Circular No. , dated 20-6-2003
This clarification of the Board is being quoted to deny cenvat credit of the Service Tax paid by a manufacturer. It is being conveniently forgotten that the above clarification was in relation to the Service Tax Credit Rules, 2002 but certainly not in relation to the Cenvat Credit Rules, 2004. The new rules stipulate credit on any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004. There is absolutely no restriction on the service instrument to be installed in the business premises. May be in the case of telephones, the instrument can be installed in the factory or service premises but there are several services which can be availed only outside. If an event management service provider sends his anchors to a beauty parlour just before the show, is he eligible for taking credit on the service tax paid for the beauty treatment? Is he eligible for the credit only if the beauty treatment is done in his office? Is a manufacturer eligible for taking credit of Service Tax on a bank draft only if the bank is within the factory?
Why this restriction only on telephones? And now even landline phones can be carried around. Will credit be allowed on the Service Tax for those phones? And what if the mobile phone is used only within the factory? Will credit be allowed?
There seems to be no logic or law behind the Board’s clarification and credit should be allowed if the mobile phone is an input service – nothing more nothing less.
In England, VAT credit is allowed on mobile phones but recently the Customs and Excise Department conducted a survey of company mobile phone bills and found that among all the companies inspected, personal use was as high as 40 per cent, according to Billy Cairns, director of VAT services. He advised companies that provide their staff with mobile phones to ensure that they avail credit only the VAT on the 'business' element of their phone bills, or that they pay back any VAT on the 'private' component of the calls. He said that what was often a "giveaway" when Customs & Excise looked at a company's mobile phone bills was the number of calls made after 6 pm along with “sms’ by an employee. "Text messages are not usually associated with business and it's unlikely many business calls are made after 6 pm," he said.
Will our DGST or the Board clarify the matter?
Neither the Board, nor the DGST bothered to clarify, but the Tribunal solved the problem. In a landmark decision which we are reporting today, the Tribunal held, In the absence of any express prohibition, under the new Cenvat Credit Rules, 2004, I am of the view that Service Tax paid on Mobile Phone is available as credit to eligible Service providers of output service and manufacturers.