Bharti Airtel Limited Vs The Commissioner of Central Excise, Customs & Service Tax (CESTAT Bangalore)
Credit on Tower Materials and Prefabricated Buildings or Shelters admissible on the basis of permanency test
Conclusion: In present facts of the case, the Hon’ble Tribunal provided relief to the Appellant by allowing the CENVAT credit on tower materials and prefabricated buildings or shelters by relying on the Judgment of Vodafone pronounced by Hon’ble Delhi High Court, which have relied on the Judgment of Solid and Correct Engineering Works which laid down the permanency test.
Facts: In present facts of the case, the appellant claims that for the purpose of setting up, operation and maintenance of the telecom network throughout the country, it set up Mobile Towers and Shelters. The appellant further claims that in order to build the infrastructure facilities, it procured various telecommunication equipments that were imported or indigenous, other goods and iron and steel angles, bars and beams and used them for providing output services. The appellant reimbursed/paid service tax, excise duty and countervailing duty (CVD) on these goods and availed CENVAT credit on Capital Goods, Input and Input Services under the CENVAT Credit Rules, 2004. When these Rules were introduced w.e.f. 10.09.2004, in super session of the erstwhile CENVAT Credit Rules, 2002, and Service Tax Credit Rules, 2002, the appellant started availing CENVAT credit of the excise duty paid on towers/tower materials. During the period from September 2004 to December 2007, for determining the CENVAT credit available for meeting the requirement to pay service tax on the output service, the appellant considered the entire credit on input service and only 50% of the credit on ‘capital goods’.
This show cause notice was issued on the ground that the definition of ‘capital goods’ in terms of rule 2 (a) of the Credit Rules does not include goods falling under Chapter 72 and 73 and Tower/Tower materials cannot be considered as components/spares and accessories of the capital goods; that the angles, channels and beams, prima facie, cannot be treated as inputs; that the angles, channels, beams etc., are used to fabricate the tower and the activity of erection of towers does not amount to manufacture as the tower is in the nature of immovable fixture; and that the tower in itself is not treated as excisable goods and hence not entitled to be treated as input for the purpose of availing CENVAT credit.
Before the Hon’ble Tribunal it was submitted as under:
1. The towers/tower materials and pre-fabricated buildings/ shelters on which CENVAT credit has been availed by the appellants are capital goods and the said availment is valid;
2. In any case, the appellant is entitled to avail CENVAT credit of towers/tower materials and pre-fabricated shelters as inputs;
3. The towers, shelters and parts thereof, at the time of their receipt were movable goods and, therefore, the Appellant is eligible to take CENVAT credit on the same. At the site, they are bolted and placed on a platform either on the ground or on top of a building to ensure that there is no vibration to the tower. The same can be dismantled again and moved to a different place and erected again.
The appellant relied on the Judgments of Vodafone Mobile Services Ltd. and Others vs. Commissioner of Service Tax, Delhi, 2019 (27) G.S.T.L. 481 (Del.) which considered and distinguished the decision of the Bombay High Court in Bharti Airtel Limited vs. CCE, Pune – III 2014 (35) S.T.R. 865 (Bom.). The Hon’ble Tribunal considered both the Judgments and have observed that the Hon’ble Delhi High Court first examined whether the towers, shelters and accessories used by the appellant were immovable property and in this connection, after referring to the decision of the Bombay High Court in Bharti Airtel Ltd., on which reliance was placed by the Department. The Hon’ble tribunal took para 38 of the Judgment of Vodafone wherein it was held as under:
38. A machine or apparatus annexed to the earth without its assimilation by fixing with nuts and bolts on a foundation to provide for stability and wobble free operation cannot be said to be one permanently attached to the earth and therefore, would not constitute an immovable property. Thus, the Tribunal erred in relying on the Bombay High Court in Bharti Airtel Ltd. (supra). It is also important to understand that when the matter was carried out in the Bombay High Court and the judgment was delivered, the whole case proceeded on the presumption that these are immovable properties. The Tribunal failed to appreciate the ‘permanency test’ as laid down by the Supreme Court in Solid and Correct Engineering (supra).”
The Hon’ble Delhi High Court, thereafter, examined whether the appellant was entitled to claim CENVAT credit on towers, shelters either as ‘capital goods’ or ‘inputs’ in terms of rules 2(a) or 2(k) of the Credit Rules and whether the towers and shelters would qualify as ‘accessories’. The High Court, after noticing the definition of ‘capital goods’ in rule 2(a) of the Credit Rules and the definition of ‘input’ in rule 2(k) of the Credit Rules, observed as follows:
47. From the foregoing discussion, clearly towers and shelters support the BTS in effective transmission of the mobile signals and therefore, enhance their efficiency. The towers and shelters plainly act as components/parts and in alternative as accessory to the BTS and would are covered by the definition of “capital goods”.
48. In the present cases, the Tribunal, in this Court’s view erred in interpreting the definition of “capital goods”. It merely adopted the ratio laid down by the Bombay High Court in the case of the Bharti Airtel (supra) and Vodafone India (supra). Both those are subject matter of appeals before the Supreme Court. This Court is of the opinion, with due respect to the Bombay High Court that those two judgments are contrary to settled judicial precedents, including the later view of the Supreme Court in Solid and Correct Engineering (supra). In this conclusion, it is held that the Tribunal clearly erred in concluding that the towers and parts thereof and the prefabricated shelters are not capital goods with the meaning of Rule 2(a) of the Credit Rules. This question is answered in favour of the assessee and against the Revenue.”
Alternatively, the Hon’ble Delhi High Court also examined whether the towers and shelters would qualify as ‘inputs’ under rule 2(k) of the Credit Rules and observed as follows:
