Cenvat on Mobile phones

The judgment, that the entire India Inc has been keenly waiting for is finally out. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled in favour of the industry and held that service tax paid on mobile phones is eligible for availing Cenvat credit.
Earlier, the Ministry of Finance had clarified that “Credit of Service Tax paid on Telephones: 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.”
But who will challenge the ministry circular, more so since the service tax component on such mobile phone usage is very small and appeals to the tribunal involving meagre amounts always face the risk of being shown the door.
Fortunately, despite such a situation, CESTAT in the present case felt it appropriate to entertain the appeal of the company and pass an order on the same, as it was a recurring issue.
The period involved in the case was December 2004 to February 2005 and after hearing both sides, the tribunal observed that the old circular dated of 2003 on which sole reliance has been placed to deny the credit of service tax was relevant under the old service tax credit rules, 2002 which required the telephones to be installed in the business premises of the service provider.
Further, CESTAT said that since no such stipulation exists in the new Cenvat Credit Rules, 2004, the old circular could not be pressed into service. Also, rule 4(1) of the Cenvat Credit Rules, 2004 states that credit in respect of inputs may be taken on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of the output service and there is no stipulation regarding receipt of input service, which is separately defined under the rules.
That is not all the tribunal clarified that sub-rule (7) of rule 4 merely provides that Cenvat credit in respect of input service shall be allowed on or after the date on which the payment is made for value of input service and service tax paid or payable is indicated in the invoices, bills or challans.
The tribunal observed...
: that there is no provision anywhere in the rules disallowing credit of service tax paid on mobile phones, which in any case is fast replacing fixed line phones in many establishments. And in the absence of any express prohibition under the new Cenvat Credit Rules, 2004, service tax paid on mobile phone is available as credit to eligible service providers of output service and manufacturers. CESTAT set aside the order of the lower appellate authority and the appeal was allowed.

Rule 4 of the Cenvat credit rules clearly defines that the credit available on any service can be utilised while paying duty on output service or product. We can very well adjust the credit available on mobile bills PROVIDED THE MOBILES ARE REGISTERED ON THE SAME NAME OF THE COMPANY ETC. WHO IS LIABLE TO PAY THE OUTPUT DUTY