R S Sharma : Credit of service tax paid on mobile service is admissible

Though the service tax department continues to agitate why a manufacturer is availing credit of service tax paid on Mobile Phone service by issue of show cause notices; the issue itself stands settled against the Department by High Court Rulings. 
The appeal filed by Commissioner of Central Excise Nagpur against CESTAT Order in case of Ultratech Cement challenging admissibility of credit on Mobile service has already been dismissed by  Nagpur Bench of Bombay High Court vide Ruling dated 27th September 2010 in CE Appeal No. 4 of 2010. High Court ruled that no fault can be found in the order of the Customs, Excise & Service Tax Appellate Tribunal in granting credit of service tax paid on mobile phones.  
Gujarat High Court in another case of Commissioner of Central Excise Versus Excel Crop  Care  Ltd AIT-2010-498-HC in Tax Appeal No. 1543 of 2007 decided on 29.7.2008 held 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. It was further held that 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.
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was issued keeping into consideration the Service Tax Credit Rules, 2002 in force at that time which have since been superseded vide Notification No. 23/2004-Central Excise (Non-Tariff) dated the 10th September, 2004 by CENVAT Credit Rules, 2004.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.”
CBEC has issued a circular on 23rd August, 2007 superseding all earlier circulars and has held that credit of service tax on mobile phones would be available under the 2004 Rules.
Vide Para 8.3 of Master Circular No. 97/2007 dated 23.8.2007 issued under     F. No. 137/85/2007-CX.4 it has been clarified by CBEC as follows:
 “A doubt has been raised regarding admissibility of CENVAT credit on service tax paid in respect of mobile phones. In the Service Tax Credit Rules, 2002, it was prescribed that credit of service tax was admissible only on telephone connection installed in the business premises. A clarification to this effect was also issued vide circular No. 59/8/2003-ST, dated 20.6.2003, in the context of the Service Tax Credit Rules, 2002. However, in the CENVAT Credit Rules, 2004 no such condition has been prescribed. Therefore, w.e.f. 10.9.2004, credit of service tax paid in respect of mobile telephone service is admissible, provided the mobile phone is used for providing output service or used in or in relation to manufacture of finished goods.” 
It is a settled law that CBEC Circulars are binding on Departmental Officers.But the real problem is that most of the Officers are ignorant of the Circulars. Ignorance of law is not an excuse for taxpayer but ignorance of Circular is a boon for the Officers for raising unwarranted disputes.The only solution to the problem is mandatory posting of 3 months for all Officers of the rank of Commissioner/Additional Commissioner/Deputy Commissioner as Departmental Representative in CESTAT so that they have better appreciation of law.