Cenvat credit on Tower parts & Pre-fabricated buildings – CESTAT grants stay as demand was time barred

Tribunal granted Stay to Bharti Airtel Ltd. on the ground of demand being time barred when Cenvat credit on Tower parts and Pre-fabricated buildings was denied recently by the Hon’ble High Court of Bombay

Bharti Airtel Ltd. (the Appellant)is engaged in the business of providing cellular services. The issue involved is admissibility of Cenvat credit on inputs, capital goods and input services used in the erection of transmission towers and shelters spread all over the country far from the office premises of the Appellant.

The Adjudicating Authority denied Cenvat credit amounting to Rs.142.72crores as inadmissible under the provisions of the Cenvat Credit Rules, 2004 (the Credit Rules) and the same was ordered to be recovered along with interest and penalty. Being aggrieved, the Appellant filed an appeal along with Stay application before the Hon’ble CESTAT, Delhi.

The Appellant contended that the period involved in the instant case is September 2004 to January 2008 and the Show Cause Notice (SCN) was issued on April 22, 2010. It was further submitted by the Appellant that in their periodical returns, the Cenvat credit taken was duly reflected and there has been no willful mis-statement or suppression of facts on their part and there were judgments of Hon’ble CESTAT which allowed such Cenvat credit. Inasmuchas it is only after the Hon’ble Larger Bench CESTAT decision in Vandana GlobalVs. CCE[2010-TIOL-624-CESTAT-DEL-LB] (“Vandana Global case”), that the position acquired a degree of clarity and, therefore, the entire demand is barred by time.

On the other hand, the Revenue argued that the Appellant had deliberately taken the impugned Cenvat credit knowing fully that the same was not admissible. Hence, extended period is invocable.

The Hon’ble CESTAT, Delhi after evaluating various paras of the SCN and relying upon following judgments:

• Binani Zinc Vs. ACCE Cochin [1995 (7) ELT 514 (Ker.)];
• Laxmi Cement Vs. CCE, Jaipur-l [2004 (1700 ELT 15 (Tri.- Del)]
• Gopal ZardaUdyog Vs. CCE [2005-TIOL-123-CEX-LB]
• CCE Vs. Chemphar Drugs Liniments [2002-T1OL-266 SC-CX]

Held that in the present case, the SCN or the Order of the Adjudicating Authority scarcely brings out any negligence or failure on the part of the Appellant. Further, on what basis it was evident that Appellant ‘knew’ that taking Cenvat credit was irregular is not discerned from the SCN. Hence, extended period cannot be invoked.

Furthermore, the Hon’ble Tribunal also upheld the contention of the Appellant that there had been divergent judgments regarding the admissibility of Cenvat credit in the situations similar to the present case and the matter got settled only after Vandana Global case.

Accordingly, the Hon’ble Tribunal waived the pre-deposit of the adjudged dues and stayed the recovery of the adjudicated liabilities during pendency of the appeal.

Our Comments:

Here, we would like to highlight the decision of the Hon’ble High Court of Bombay in the case of BhartiAirtel Ltd. Vs. The Commissioner of Central Excise, Pune III [2014-TIOL-1452-HC-MUM-ST] (“Bharti Airtel case”), wherein the Hon’ble High Court while denying Cenvat credit on Tower Parts and Pre-fabricated buildings very clearly held that:

• The tower and parts thereof are fastened and are fixed to the earth and after their erection become immovable and, therefore, cannot be goods. The towers are admittedly immovable structures and non-marketable and non-excisable;
• Further in the CKD or SKD condition the tower and parts thereof would fall under the Chapter heading 7308 of the CETA not specified in clause (i) or clause (ii) of Rule 2(a)(A) of the Credit Rules and therefore not covered under the ambit of ‘capital goods’;
• The enunciation of law as laid down in the judgment in the case of Simbholi Sugar Mills Vs. Commissioner of Central Excise, Meerut [2001 (135) ELT 1239 (TRI-DEL)] clearly shows that the towers are immovable property and non-excisable and hence, can neither be regarded capital goods nor can be categorized as input under the Credit Rules.

Thereafter, the Central Board of Excise and Customs has issued an Instruction F. No. 267/60/2014-CX.8 dated November 11, 2014 to all Commissioners and above, inviting the attention of the officers to the Judgment of the Hon’ble High Court of Bombay in the Bharti Airtel case (supra) for compliance.

The stay granted by the Hon’ble CESTAT, Delhi in recent case is purely on period of limitation and not made any observation on eligibility of Cenvat credit on Tower parts and Pre-fabricated buildings.