CA Urvashi Porwal
In the case of Vodafone India Ltd. V/s. The Commissioner of Central Excise, it was held by Bombay High Court that by following the principles laid down in the case of Bharti Airtel Ltd. v/s Commissioner of Central Excise, a telecom service provider is not entitled to credit of duty paid on towers (in CKD and DKD form), parts of towers, shelter / prefabricated buildings used for providing output service.
The Appellant is inter alia engaged in the business of providing telecom services under the category ‘telecommunication services’ within the telecom circles of Mumbai. It is the case of the Appellant that during the course of its business, it is required to set up various equipments which are integral to, and used for providing such services. Such equipments are essential and an integral part of the telecom service delivery across the world and is the backbone of the telecom service. Such infrastructure includes public switching equipment, transmission equipment and various customer premises equipment. At the heart of the whole infrastructure is the Base Transceiver Station (BTS) which facilitates wireless communication between the customer’s equipment (eg. mobile phones) and the main network. The general architecture of the BTS system involves various equipment such as antennae, towers, pre-fabricated buildings etc. and all these, in combination, are used by the Appellant in delivering telecom services to its customers.
According to the Appellant, in its ordinary course of business, it had availed of CENVAT credit for duty paid on inputs and capital goods as well as availed of credit of service tax paid on input services used for providing output service, and utilised the same for discharging their output service tax liability. The Appellant had inter alia availed of CENVAT credit for duty paid on towers (in CKD/SKD form), parts of towers, shelter / prefabricated buildings purchased by them and used for providing output service.
As the statutory authorities were of the view that the Appellant is not entitled to avail of CENVAT credit under the “CENVAT Credit Rules 2004”, show cause notices were issued to the Appellant for the period from 2005-2006 to 2010-2011. These show cause notices were replied to by the Appellant denying all the allegations set out therein and contending that the said goods were capital goods and / or in the alternative, should be treated as inputs and therefore they were entitled to claim CENVAT credit. Thereafter, the Commissioner (TAR), Mumbai, after granting the Appellant a personal hearing, adjudicated the said show cause notices and by his order dated 30th October 2012, confirmed the demand therein along with interest and penalty.
Being aggrieved by this order of the Commissioner, the Appellant preferred an Appeal before the CESTAT under section 86 of the Act and also filed a stay application therein. This Appeal was disposed of by CESTAT by its judgment and order dated 16th March, 2015 inter alia confirming the order of the Commissioner (TAR), Mumbai. Being aggrieved by this order of CESTAT, the Appellant is before this court.
Contentions of the Assessee
The Appellant contended that CESTAT erred in coming to the finding that the towers / pre- fabricated buildings (the said goods) of the Appellant, and on which CENVAT credit was claimed, are immovable properties. To classify the said goods as immovable properties, attachment thereof to the land has to be for the permanent beneficial enjoyment of the land and should not have a separate existence devoid of the land. The Assessee relied upon a decision of the Supreme Court in the case of Commissioner of Central Excise, Ahmedabad v/s Solid and Correct Engineering Works and others. In the present case, the said goods of the Appellant did not satisfy this test and therefore, could never be termed as immovable property.
Contentions of the Revenue
The Revenue contended that the issues raised and the questions of law as projected in the Appeals, are squarely covered by the judgment of this Court in Bharti Airtel Ltd. v/s Commissioner of Central Excise, Pune – III. A telecom service provider is not entitled to credit of duty paid on towers (in CKD and DKD form), parts of towers, shelter / prefabricated buildings allegedly used by the Appellant for providing output service.
Held by Hon’ble High Court of Bombay
The Hon’ble High Court referred to the judgment of Bharti Airtel and stated the court took note of the relevant provisions viz. the definition of the words ‘capital goods’ [Rule 2(a)(A)], ‘input’ [Rule 2(k)] and Rule 3 which inter alia provides under what circumstances CENVAT Credit can be availed of. After noting the aforesaid provisions and a lengthy discussion in relation thereto, this Court in Bharti Airtel’s case held that the said goods are neither ‘capital goods’ as defined in rule 2(a)(A) of the CENVAT Credit Rules, 2004 and nor do they fall within the definition of ‘input’ as defined in rule 2(k) thereof. This Court has further held that in any event the towers and parts thereof are in the nature of immovable property and are non-marketable and non-excisable and therefore, they cannot be classified as ‘inputs’ so as to fall within the definition of rule 2(k) of the CENVAT Credit Rules, 2004. The relevant portion of Bharti Airtel’s decision reads thus:-
“23. In the context of these definitions the contentions as raised by the appellant are required to be examined. The position of the goods in question vis–a-vis the plain application of the rules is 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. Further in the CKD or SKD condition the tower and parts thereof would fall under the chapter heading 7308 of the Central Excise Tariff Act. Heading 7308 is not specified in clause (i) or clause (ii) of rule 2 (a)(A) of the Credit Rules so as to be capital goods. The goods in question would not be capital goods for the purpose of CENVAT credit as they are neither components, spares and accessories of goods falling under any of the chapters or headings of the Central Excise Tariff Schedule as specified in sub-clause (i) of the definition of capital goods.
31. In the light of the aforesaid discussion we examine whether on the rules as they stand the appellants would be entitled to the credit of the duty paid on the item in question on the output service namely the cellular service. We may observe that a plain reading of the definition of ‘capital goods’ as defined under Rule 2(a)(A) of the Credit Rules show that all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No.6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Central Excise Tariff Act; pollution control equipments; components, spares and accessories of the goods specified at sub clauses (i) and (ii) which are used either in the factory for manufacture of final products but does not include any equipment or appliance used in the office and those used for providing output service. Further in the CKD or SKD condition the tower and parts thereof would fall under the chapter heading 7308 of the Central Excise Tariff Act. Heading 7308 is not specified in clause (i) or clause (ii) of rule 2 (a)(A) of the Credit Rules so as to be capital goods. Further the Appellants contention that they were entitled for credit of the duty paid as the Base Transreceiver Station (BTS) is a single integrated system consisting of tower, GSM or Microwave Antennas, Prefabricated building, isolation transformers, electrical equipments, generator sets, feeder cables etc. and that these systems are to be treated as “composite system” classified under Chapter 85.25 of the Tariff Act and be treated as ‘capital goods’ and credit be allowed, also is not acceptable. It is clear that each of the components had independent functions and hence, they cannot be treated and classified as single unit. It is clear that all capital goods are not eligible for credit and only those relatable to the output services would be eligible for credit. The goods in question in any case cannot be held to be capital goods for the purpose of CENVAT credit as they are neither components, spares and accessories of goods falling under any of the chapters or headings of the Central Excise Tariff Schedule as specified in sub-clause (i) of the definition of capital goods. Hence a combined reading of sub-clause (a)(A) (i) and (iii) and sub-rule (2) indicates that only the category of goods in Rule 2(a)(A) falling under clause (i) and (iii) used for providing output services can only qualify as capital goods and none other. Admittedly the goods in question namely the tower and part thereof, the PFB and the printers do not fall within the definition of capital goods and hence the appellants cannot claim the credit of duty paid on these items. Even applying the ratio of the judgments as relied upon by the appellants as observed above the said goods in the present context cannot be classified as capital goods.
32. As regards second contention of the appellants that the tower and part thereof, the PFB and the printers would also falls under the definition of ‘input’ as defined Rule 2(k) also cannot be sustained. The definition of inputs as defined under rule 2(k) includes all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production, and as provided in sub-clause (ii) all goods except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service. Explanation (2) of sub-rule (k) is also which provides that input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. A plain reading of the definition of input indicates that in the present context, clause (i) of Rule 2 (k) may not be of relevance as same pertains to manufacturing activity and pertains to goods used in relation to manufacture of final product or any other purpose within the factory of production. Sub-clause (ii) has been referred to as relevant by the appellant as the same pertains to goods except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service. Tower and parts thereof are fastened and are fixed to the earth and after their erection become immovable and therefore cannot be goods.
33. The alternative contention of the appellant is that tower is an accessory of antenna and that without towers antennas cannot be installed and as such the antennas cannot function and hence the tower should be treated as parts and components of the antenna. It is urged that antennas fall under chapter 85 of the schedule to the Central Excise Tariff Act and hence being capital goods used for providing cellular service falling under rule 2(a)(A)(iii) as part of capital goods falling under rule 2(a)(A)(i) towers become accessories of antenna and should be held as capital goods for availing of credit of duty paid. The argument at the first blush appeared to be attractive however a deeper scrutiny shows that the same is without substance. It would be misconceived and absurd to accept that tower is a part of antenna. An accessory or a part of any goods would necessarily mean such accessory or part which would be utilized to make the goods a finished product or such articles which would go into the composition of another article. The towers are structures fastened to the earth on which the antennas are installed and hence cannot be considered to be an accessory or part of the antenna. The position in this regard stands fortified from the decision of the Supreme Court in the case of “Saraswati Sugar Mills vs CCE Delhi, (2011 (270) ELT 465)”. From the definition of the term ‘input’ as defined in 2 (k) of the Credit rules it is clear that the Appellant is a service provider and not a manufacturer of capital goods. A close scrutiny of the definition of the term capital goods and input indicates that only those goods as used by a manufacturer would qualify for credit of the duty paid. As observed hereinabove a service provider like the appellant can avail of the credit of the duty paid only if the goods fall within the ambit of the definition of capital goods as defined under Rule 2(a)(A) of the Credit Rules. The contention of the appellant that they are entitled for the credit of the duty paid towers and PFB and printers is defeated by the very wording of the definition of input. In any case towers and PFB are in the nature of immovable goods and are non-marketable and non-excisable. If this be the position then towers and parts thereof cannot be classified as inputs so as to fall within the definition of Rule 2(k) of the credit rules. We clarify that we are not deciding any wider question but restricting our conclusion to the facts and circumstances which have fell for our consideration in these appeals.”
The Hon’ble Court further stated that the said decision squarely applies to the present case of the Appellant. This Court has considered all aspects of the matter and then come to the conclusions that it did. Once the very rules that have been relied upon by the appellant, are interpreted by the Division Bench of this Court, judicial discipline demands that this interpretation be followed by this court. It is now quite well settled that an interpretation of a statutory provision, and equally a misinterpretation, by one Bench of the High Court would be binding on a coordinate Bench of that very High Court. The subsequent Bench cannot come to the opinion that a particular provision was misinterpreted and under that pretext seek to reinterpret it again. If the subsequent Bench is of the view that the statutory provisions are misconstrued and / or misinterpreted, the only recourse available to it would be to refer it to a larger Bench. If for any reason, the Appellant is of the opinion that the decision in Bharti Airtel’s case does not lay down the correct law, then the remedy to correct the same lies before a Superior Court.
The Hon’ble Court further mentioned that the decision in Bharti Airtel’s case has been challenged before the Supreme Court in Civil Appeal Nos.10409 and 10410 of 2014 in which notice has been issued and the Supreme Court has ordered that these Civil Appeals be tagged with Civil Appeal Nos.5698 and 5699 of 2012 arising out of SLP (Civil) Nos.22864 and 22865 of 2011 [Commr. Of Cen. Exc. Vishakhpatnam Vs. M/s. Sai Samhita Storages P. Ltd.]. However, as far as this court is concerned, the issue stands concluded by the decision of this Court in Bharti Airtel’s case.
In view of the above, the appeal is dismissed.