By TIOL News Service

MUMBAI, JULY 17, 2009: IT was only two weeks ago that the CESTAT had in the case of Vikram Ispat [2009-TIOL-997-CESTAT-Mum] come to the conclusion that -

“Cenvat Credit is not available on Security services, Rent-a-cab services, Mobile Telephony services as appellants have not adduced evidence to establish the nexus, if any, between the “services” and the manufacture/clearance of the final products”

We had while reporting the case expressed our deep anxiety that we were in all probability trudging our way back to the early Modvat era and had sought our netizen’s reactions on the following posers –

“Before we go to the case, let us have your reaction if you are asked to prove with documents that –

Interestingly, no messages were posted on the message board in response to the above question quite likely because such an exercise was already being conducted by the adjudicating authorities while denying the Cenvat Credits.

The present case will bring to the fore the stark reality.

But before that, let us see what the Gujarat High Court had to say in the case of CCE vs. Excel Crop Care Ltd. [2008-TIOL-568-HC-Ahm-CX] while allowing Cenvat credit of the Service tax paid on mobile telephony service -

“8. Therefore, on a conjoint reading of the aforesaid provisions, it is apparent that the mobile service provider, who is liable to pay Service tax, and recovers the same by adding such Service tax in his bill, is the person providing taxable service and is rendering 'output service' so as to constitute 'input service’ in hands of respondent assessee.
9. In the aforesaid circumstances, the ground on which the credit was disallowed, namely, the phones were not installed in the factory premises, cannot be termed to be a ground germane to the provisions of the Rules relevant for the present purpose.”

Incidentally, in the case of Vikram Ispat (supra), the Bench had while denying the Cenvat Credit of Rs.1,34,929/- in respect of Mobile Telephone service observed as under –

“It is within anybody’s knowledge that a mobile phone can be used by a person for multifarious purposes.  No doubt, a functionary/official/employee of the company could use it for purposes connected with the manufacture and/or clearance of the final products but the assessee has failed to establish that the mobile phones in question were dedicated to this purpose.”

As mentioned, in the case on hand, the lower authorities had sought recovery of CENVAT credit of service tax of Rs.30,755/- taken on Mobile phone bills for the period January to July 2005. After verification of the mobile phone bills produced by the assessee, the original authority came to the conclusion that the mobile phones were used not only for business purposes but also for personal purposes.  On this basis, the adjudicating authority took the view that the mobile phones were not used in or in relation to the manufacture or clearance of the final products.  In the result, the demand of service tax was confirmed against the assessee and equal amount of penalty was imposed on them. 

This decision was sustained by the first appellate authority.  So, the appellant is before the CESTAT.

The appellant submitted that the finding of the adjudicating authority is not supported by any evidence.  It was also submitted that the benefit of CENVAT credit on mobile phone service is admissible to the assessee in terms of paragraph 8.3 of the Board’s Circular no. 97/8/07-ST dated 23.8.2007 and the show cause notice had been issued prior to the Board’s Circular. 

The Revenue representative submitted that the adjudicating authority had arrived at the finding only after verification of the mobile phone bills produced by the assessee and, therefore, it cannot be gainsaid that the finding is not based on evidence. 

The Bench after hearing both sides observed-

+ I have not found prima facie case strong enough to warrant full waiver of pre-deposit. 

+ Apparently, the finding of the lower authorities that the mobile phones were used for both personal and business purposes was arrived at upon verification of the mobile phone bills produced by the assessee.
 
+ For the benefit of CENVAT credit on mobile phone service, it is necessary that the assessee should establish that the mobile phones were used exclusively for the purposes connected with their business activities or, directly or indirectly, in or in relation to the manufacture/clearance of excisable goods. 

+ The lower authorities have also relied on the Board’s circular dated 23.8.07.  Significantly, the assessee also has chosen to claim under the said circular.  In the circumstances, the relevant para of the Circular has to be examined in this case.  But I have not found any copy of the Circular. 

+ According to the appellant, the crucial finding recorded by the original authority is not supported by evidence. 

+ According to the respondent, that finding was recorded after verification of the mobile phone bills produced by the assessee. 

+ In this scenario, the evidentiary value of the mobile phone bills has also got to be examined. 

+ Unfortunately, not even a specimen copy is available on record.  In the circumstances, I am constrained to observe that the appellant has failed to establish prima facie case.

+ They have not pleaded financial hardships either. 

Saying so, the CESTAT directed the appellant to pre-deposit the service tax amount and report compliance.

Lesson learnt – Talk while you work and talk business the next time you call your sweetheart!

(See 2009-TIOL-1078-CESTAT-MUM in 'Service Tax')