The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has allowed the cenvat credit to BSNL on telephone instrument or internet modem on the ground that the security deposit collected on telephone, internet modem to safeguard future revenue loss.
The bench of Ramesh Nair (Judicial Member) and Raju (Technical Member) has observed that the Telephone Instruments supplied by BSNL are Capital Goods”, not inputs and refundable security deposit has no relation with the supply of telephone instruments. The department has wrongly denied the Cenvat credit in respect of telephone instrument/ internet modem.
The appellant/assessee, BSNL is in the business of providing the telephone service and internet service for which they have provided telephone instrument and internet modem to their customers without charging the cost thereof. However, a refundable security deposit was taken from the customers without interest which is refundable at the time of surrender of their connection.
The appellant have availed the Cenvat credit in respect of such telephone instrument and internet modem.
The department’s case is that since the appellant have taken the security deposit, the same is tantamount to cost of telephone instrument and internet modem, consequently, the appellant is not entitled for the Cenvat credit on the inputs.
The assessee submitted that the security deposit is collected from the customer not as a cost of telephone instrument and internet modem but it is only to safeguard the future revenue loss, if any occurs due to nonpayment of telephone/internet service bill by the customers. Therefore, the security deposit is not collected towards the cost of telephone and internet modem. Therefore, the Cenvat credit cannot be denied.
The tribunal found that the Cenvat credit on telephone instrument and internet modem per se is admissible to the appellant as the same is used for providing the taxable service that is telephone service and internet modem. However, the department has denied the Cenvat credit only on the ground that since the cost of the telephone instruments and internet modem was collected by the appellant from their customers.
The tribunal stated that the security deposit is not a sale proceed of telephone instrument/ internet modem, whereas, the security deposit is for the purpose of adjustment of any dues against the bill of service charges. Therefore, the department has made a serious error on the face of the record contending that the security deposit is collected as cost of telephone instrument and internet modem.
The tribunal noted that the security deposit is a refundable amount which means if there is no dues against the customer at the end of the agreement period such security deposit shall be refunded to the customer. Therefore, by any stretch of imagination, it cannot be construed that the security deposit is towards the sale proceeds of telephone instruments/internet modem.
The tribunal while setting aside the demand held that the department has wrongly denied the Cenvat credit in respect of telephone instrument/internet modem.
Case Details
Case Title: Bharat Sanchar Nigam Ltd. Versus Commissioner of C.E. & S.T.-Surat-i
Case No.: Service Tax Appeal No. 11522 Of 2015-DB
Date: 25.11.2024
Counsel For Appellant: Randhir Rajpurohit
Counsel For Respondent: Himanshu P Shrimali
