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Taxmen rap Vodafone, Bharti for Cenvat misuse
May, 12th 2008

Telecom biggies including Bharti Airtel and Vodafone are being hauled up by the taxmen for misusing Central value added tax (Cenvat) credit on capital goods and in turn paying lower service tax.

While Bharti Airtel has been issued a demand cum show cause notice for misusing Cenvat credit amounting to Rs 46.26 crore, Vodafone-Essar has been given a similar notice to pay Rs 4.93 crore.

Other issues in both the notices include taking Cenvat credit twice on the basis of the same invoice and also availing the tax credit on the strength of non specified documents.

The notices come in the wake of the Central Board of Excise and Customs (CBEC) finding them responsible for misusing Cenvat credit. Sources said that even the state-owned Bharat Sanchar Nigam Ltd (BSNL) and BK-Modi-led Spice Telecom have also been issued similar demand cum show cause notices for the same issue.

The matter is expected to drag on as the telecom Companies have maintained that there's no misuse and they are entitled to such credit. Industry sources said that the Cellular Operators Association of India (COAI) would take up the matter on the industry's behalf.

The Board has also informed its field formations that many mobile service providers have been availing Cenvat credit for equipment used for erecting transmission towers and those used for housing and storage of generating sets and other equipment claiming that these are items are "inputs."

However the Board has stated that since these goods including angles, channels, beams, pre-fabricated building, shelters and PUF panels are inputs for civil structures that are not excisable goods, so they are not chargeable to excise duty. It has also directed field formations to recover such irregularly availed credit.

The issue came to the notice of the CBEC after it was found that service tax collections from the telecom sector was especially low all through 2007-08, despite the sector doing well. Service tax collections fell about 40% from the sector, although overall collections of the tax rose by 35% in the fiscal. Initial estimates reveal that over Rs 49,500 crore as service tax was collected last fiscal.

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