Whether telephone services installed at official residences are entitled for “input service” credit ?

PJ/Case Law/2013-14/1938

Case:-BHARAT PETROLEUM CORPORATION LTD. Vs COMMR. OF C. EX., MUMBAI-II

Citation:-2013 (31) S.T.R. 455 (Tri. - Mumbai)

Brief facts:- The appellant is in appeal against the impugned order wherein “input service” credit on telephone services which were installed at the residence of the officials of the appellant has been denied.

Appellant’s contentions:- The learned Counsel for the appellant submitted that the telephone services installed at their official residences were used for the business purpose of the appellant therefore, they were entitled for “input service” credit on these services. He heavily relied on the decision of the Hon’ble High Court of Bombay, in particularly para 29, in the case of CCE, Nagpur v. Ultratech Cement Ltd. - 2010 (20)S.T.R.577 (Bom.) = 2010 (260)E.L.T.369 (Bom.), which is reproduced herein below :-
“The expression “activities in relation to business” in the definition of “input service” postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be an input service under Rule 2(l) of the 2004 Rules.”
The learned Advocate further relied on the decision in the case of Union of India v. HEG Ltd. - 2011 (24)S.T.R.275 (Chhattisgarh).In that case, the issue of telephones installed at the residence of the officials of the assessee-company came before the Hon’ble High Court of Chhattisgarh wherein the view taken by the Tribunal ‘that the appellant is entitled for “input service” credit on the telephone services which used in relation to business activities’ has been upheld by the Hon’ble High Court. Therefore, he prayed that the impugned order be set aside and the appeal be allowed.

Respondent’s contentions:- The learned A.R. appearing for the Revenue strongly opposed the contention of the learned Advocate. The learned A.R. relied on the decision of Maruti Suzuki Ltd. v. CCE, Delhi-III - 2009 (240)E.L.T.641 (S.C.)wherein the Hon’ble Apex Court held that inputs which have direct nexus with the manufacturing activity are entitled for credit and submitted that in this case the telephone services installed at the residence of the offence have no nexus with the manufacturing activity of the appellant, therefore, credit should not be allowed. He further relied on para 29 of the decision of Ultratech Cement Ltd. (supra) wherein it had been held that “input service” should have direct nexus with the manufacturing activity. Therefore, he prayed that the impugned order be upheld.

Reasoning of judgment:- The Hon’ble judge held that inasmuch as the issue had already been decided by the Hon’ble High Court of Bombay in the case of Ultratech Cement cited supra, particularly para 29 of the judgment, wherein the Hon’ble High Court of Bombay held that ‘the expression “activities in relation to business” in the definition of input service postulates activities which were integrally connected with the business of the assessee.’ The intention of the Hon’ble High Court was that a manufacturer of excisable goods can avail “input service” credit in the course of business of manufacturing activities. Therefore, the argument advanced by the learned A.R. that it should have direct nexus to the manufacturing activity, was not correct. Further, in the case of Maruti Suzuki Ltd. (supra) the Hon’ble Apex Court dealt with the issue under Rule 2(k) of Cenvat Credit Rules, 2004 but there was no whisper at all with regard to “input service” as per Rule 2(l) of the Cenvat Credit Rules, 2004. Therefore, the decision of Maruti Suzuki Ltd. (supra) had no relevance to the facts of this case. Moreover, the decision of the Maruti Suzuki Ltd. (supra) which had been relied upon by the learned A.R. was jeopardy as the same was pending before the Larger Bench of the Hon’ble Apex Court. Therefore, he found no force in the argument advanced by the learned A.R.
He was rather convinced with the argument advanced by the learned Counsel for the appellant that the telephones installed at the residences of the officials which were integrally connected with the business of the manufacture of final product of the appellant and the same was covered under Rule 2(l) of the Cenvat Credit Rules, 2004.
Accordingly, he held that the appellant was entitled for “input service” credit on telephone services installed at the residence of the officials of the appellant.
The impugned order was set aside and appeal was allowed with consequential relief, if any. Stay application was also disposed of in the above terms.

Decision:- Appeal allowed.

Comment:- The analogy drawn from the case is that the telephones installed at the residences of the officials can be deemed to be integrally connected with the business of the manufacture of final product of the appellant and the same are covered under Rule 2(l) of the Cenvat Credit Rules, 2004. Accordingly, credit is admissible on the same.

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