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Credit of Service Tax paid on Cellular Bill is admissible

AIT News Network

NEW DELHI. Though the field officers are illegally denying the Credit of Service Tax paid on Mobile Telephone Service, wrongly relying on CBEC Circular No.59/8/2003-ST dated 20.06.2003 ; it is legally admissible to manufacturers/service providers.

Attention is invited to CBEC Circular No. 59/8/2003 dated 20th June, 2003 F. No. B3/7/2003-TRU which clarifies as under:

“ 2.8 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.”

The abovesaid Circular was issued keeping into consideration the Service Tax Credit Rules, 2002 in force at that time which have since been superseded vide Notification No. 23/2004-Central Excise (Non-Tariff) dated the 10th September, 2004 by CENVAT Credit Rules, 2004.

Rule 3 of erstwhile Service Tax Credit Rules, 2002 stipulated as under:

“(6) 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.”

FinMin is already considering the suggestions of Allindiantaxes to withdraw CBEC Circular No. 59/8/2003-ST dated 20.06.2003 as it has become outdated in context of current CENVAT Credit Rules which do not restrict availment of Credit on Mobile.

But even in existence of the said Circular; the Credit of service tax paid on Cellular Bill is admissible as CBEC Circular is not law. It is well settled by several rulings of the Apex Court that though the departmental officers are bound by a Circular, neither an assessee nor a tax payer is bound by the Circular. There are several precedents of CBEC Circulars being set aside by High Courts.

It is high time, CBEC issues a clarification that Credit of Service tax paid on Cellular Bills is admissible when service is input service for manufacturers/service providers and since there is no time-limit for availing the credit under the Credit Rules; the credit for the previous period is also admissible.

P.S. CESTAT has ruled that 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 –AIT-2006-159-CESTAT