The Madras High Court has ruled that telecom service provider Aircel could claim Cenvat credit on the services availed from Bharath Sanchar Nigam (BSNL) as those come under the definition of input services.
Upholding the Chennai Customs, Excise & Service Tax Appellate Tribunal order, the high court said a plain reading of rule 2 (l) of the Cenvat Credit Rules, 2004, makes it clear that Aircel was the user of the service provided by BSNL and the facility was used for providing output service to the customers of the telecom company.
“Therefore, the definition squarely applies to the facts of the present case. Since Aircel has satisfied the requirement of rule 2 (l) of the Cenvat Credit Rules, 2004, the revenue department was not justified in taking a different view contrary to the said provision,” the Bench comprising justices R Sudhakar and T Raja said.
The court order was on a civil miscellaneous appeal filed by the revenue department against the order of the tribunal which allowed the appeal filed by Aircel, granting the benefit of Cenvat credit on the service tax paid on access deficit charges (ADC) to BSNL. The adjudicating authority at the revenue had taken the view that it was only a facility extended to connect the end user by BSNL where the networking facility was not feasible for Aircel. Consequently, it denied the service tax credit on the payment towards ADC against which Aircel moved the Tribunal.
The Tribunal had taken the view that the service provided by BSNL to Aircel is a telecom service as defined under Section 65 (109a) of the Finance Act, 1994. “We are not in agreement with the argument that BSNL is providing only a facility and not any service to Aircel. After classifying the facility provided by BSNL as telecom services and collecting the service tax under such head, the revenue department cannot turn around and argue that this is not a service. Even otherwise, we are convinced that the service provided by BSNL to Aircel is a telecom service as defined in section 65 (109a) of the Finance Act, 1994. Since this service is required by Aircel for providing output services to its customers, it is obviously an input service as per definition at Rule 2(l) of Cenvat Credit Rules, 2004. Therefore, Aircel is entitled to take Cenvat credit on such services,” the Tribunal had observed.
Concurring with tribunal’s ruling, the high court Bench observed the finding of fact by the tribunal that the facility provided by BSNL to Aircel, who, in turn, provide such services to its subscribers, was nothing but a telecom service, was justified. The revenue department has not produced any material to contradict this finding of fact, the Bench further added.