ST - CENVAT credit admissible on Towers, shelter and accessories used for providing telecom services: HC
By TIOL News Service
NEW DELHI, NOV 13, 2018: THE dispute involved is whether the appellants (Telecom infrastructure companies) are eligible for CENVAT Credit on Telecom Towers and pre-fabricated shelters.
The case has a towering history.
In the case of Bharti Airtel Ltd. vs. CCE, Pune III - 2014-TIOL-1452-HC-MUM-ST, the Bombay High Court had held (on 26.08.2014) that Cellular Mobile Service provider is not entitled to avail CENVAT credit on Tower Parts & Pre-fabricated buildings.Accordingly, the CESTAT decision 2012-TIOL-209-CESTAT-MUM was upheld.
Incidentally, the CBEC was also quick to realize the potential of this favourable High Court decision and, therefore, came out with an Instruction F. No. 267/60/2014-CX.8 dated 11.11.2014, extracting the paragraphs 33 & 34 of the order & proudly proclaiming that the Hon'ble Bombay High Court has held in favour of revenue.
Moreover, in the case of Vodafone India Ltd. - 2015-TIOL-2098-HC-MUM-ST, the Bombay High Court had also held -
ST - Bharti Airtel's case 2014-TIOL-1452-HC-MUM-ST does not need a relook - subsequent Bench cannot come to the opinion that a particular provision was misinterpreted and under that pretext seek to reinterpret it again - CENVAT credit on Tower Parts & Pre-fabricated buildings is not admissible: High Court
Be that as it may, during the course of seeking extension of Stay (before the CESTAT Delhi), the appellant Tower Vision India Pvt. Ltd. & Bharti Infratel Ltd. stated that in another case ( Idea Mobile ) involving the same issue there is a difference of opinion between the Members of the Division Bench.
After considering the submissions, the Division Bench, Delhi decided that the difference of opinion in the case of Idea Mobile may be referred to a Larger Bench of 3 Members and the present appeals should be allowed to be tagged therewith to be heard by the same Larger Bench.
We reported this order as 2015-TIOL-1895-CESTAT-DEL.
The Larger Bench heard this case on 03.11.2015 and what transpired is -
Service Tax - Admissibility of CENVAT Credit on Telecom Towers - Revenue seeking an adjournment on the ground that the decision of the Mumbai Regional Bench in the case of GTL Infrastructure Ltd.- 2014-TIOL-1768-CESTAT-MUM and Reliance Infratel Ltd. - 2015-TIOL-516-CESTAT-MUM allowing credit was appealed against by Revenue before the Bombay High Court and is listed for pre-admission hearing on 16.11.2015 - on the presumption that adjournment would be granted, Revenue representative is unprepared to proceed with hearing.
Held: Although there is no justifiable reason to adjourn the hearing of the matter merely on account of pendency of pre-admission hearing before the Hon'ble High Court, Bench adjourns the hearing to 08.12.2015 peremptorily: CESTAT LB [para 4][See 2015-TIOL-2613-CESTAT-DEL-LB]
The Larger Bench inter alia held -
++ It is to be noted that the very same matters covered in the present appeals are discussed elaborately on a similar set of facts by the Hon'ble Bombay High Court in BhartiAirtel Ltd. (supra). When there is a detailed examination and ruling on identical set of facts by the Hon'ble High Court, the same are to be followed. Further, the Hon'ble Bombay High Court reiterated their findings arrived in BhartiAirtel Ltd. (supra) in the case of Vodafone India Ltd. in their order dated 01/09/2015 in civil appeal No. 126/2015 and others.
++ In such a situation and in the absence of any material before us to distinguish the said ratio vis-à-vis the fact of the present case we find the ratio of the Hon'ble Bombay High Court as laid down in BhartiAirtel Ltd. (supra) and Vodafone India Ltd. (supra) should be followed.
++ The only reason for claiming the credit on shelters and parts is their classification under Chapter 85. We find that a particular classification of duty paid item by itself does not make the item eligible for Cenvat credit. The eligibility of credit is determined by the provisions of Cenvat Credit Rules. By classifying a product and paying duty under a particular heading, an automatic claim for such credit for that item cannot be made.
++ We find that the Hon'ble High Court categorically held that towers and PFB are in the nature of immovable goods and are non-marketable and non-excisable. Accordingly, the second point of reference is also answered against the appellant and in favour of Revenue.
++ The challenge to the ratio and conclusions of the High Court's decisions in BhartiAirtel Limited and Vodafone India Limited, on the ground that these are predicated on an incorrect and impermissible interpretation of the rationes in Solid & Concrete Engineering Works, must await an appellate consideration, when and if challenged, by the Hon'ble Supreme Court. It is outside the province and jurisdiction of this Tribunal to analyse and record a ruling on a superior Court's analyses and elucidation of other binding precedents.
++ If the Hon'ble High Court was not persuaded to reconsider, while adjudicating the lis in Vodafone India Limited, its earlier decision in Bharti Airtel Limited on a premise that its earlier decision might have been incongruous with the ratio of the Apex Court's decision in Solid & Correct Engineering Works [2010-TIOL-25-SC-CX], it is clearly beyond the province of this Tribunal to embark upon such an exercise, on any grounds, including the per-incuriam principle.
The issues were answered in favour of Revenue and against the assessee.
Please see - 2016-TIOL-539-CESTAT-DEL-LB.
The assessees carried the matter to the Delhi High Court.Kindly see 2016-TIOL-958-HC-DEL-ST.
After considering the exhaustive submissions made by both sides, the Delhi High Court pronounced its judgment recently.
The following questions of law were answered thus -
| i) Whether the CESTAT was right in concluding that the towers, shelter and accessories used by the Appellants for providing telecom services are immovable property? |
+ Permanency test has to be applied in the context of various objective factors and cannot be confined or pigeonholed to one single test.
+ In the present case, the entire tower and shelter is fabricated in the factories of the respective manufacturers and these are supplied in CKD condition. They are merely fastened to the civil foundation to make it wobble free and ensure stability. They can be unbolted and reassembled without any damage in a new location.
+ The detailed affidavit filed by the assessees demonstrate that installation or assembly of towers and shelters is based on a rudimentary “screwdriver” technology. They can be bolted and unbolted, assembled and re-assembled, located and re-located without any damage and the fastening to the earth is only to provide stability and make them wobble and vibration free; devoid of intent to annex it to the earth permanently for the beneficial enjoyment of the land of the owner.
+ The assessees have also placed on record the copies of the leave and license agreements, making it clear that the licensee has the right to add or remove the aforesaid appliances, apparatus, equipment etc.
+ 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 BhartiAirtel 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).
| ii) Whether the Appellants are entitled to claim CENVAT credit on the towers, shelter as 'accessories' either as capital goods or input goods in terms of Rule 2(a) or 2(k) of the Credit Rules? |
+ All components, spares and accessories of such capital goods falling under chapter 85, would also be treated as Capital goods. Now, given that CENVAT credit is available to accessories, it is important to address whether towers and shelters would qualify as “accessories”.
+ The primary test to qualify as an accessory is whether does the item in question adds to the beauty, convenience or effectiveness of something else. An accessory is an article or device that adds to the convenience or effectiveness of but is not essential to the main machinery.
+ It was highlighted during the hearing of the appeals that the towers are structures installed to support GSM and microwave antennae. These antennae receive and transmit signals and are used for providing output service.
+ Without them, the antennae cannot be installed high above the ground and cannot receive or transmit signals. Therefore, the towers too have to be considered as essential component/ part of the capital goods, namely BST and antennae.
+ Further, BTS is an integrated system and each component in the BTS have to work in tandem to provide cellular connectivity to phone users and to provide efficient services. In the facts of the present case, it is evident that the towers form part of the active infrastructure as the antennae cannot be placed at that altitude to generate uninterrupted frequency. Further, these shelters are accessories for the placement of various BTS equipment and other items for it to remain in a dust - free, ambient temperature.
+ 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 are covered by the definition of “capital goods”.
+ The CESTAT has failed to appreciate that the towers and the parts thereon and the pre-fabricated shelters are inputs, in accordance with the provisions of Rule 2(k) of the Credit Rules.
| iii) Whether the CESTAT erred in applying nexus test with reference to MS Angles and Channels, whereas according to the Appellants what was brought to the site were towers, shelter and accessories for providing services? |
+ The inputs such as MS Angles and channels are used for the providing infra-support service/ telecom service. To apply the term “used for” in the definition of inputs, there should be a nexus between the inputs goods and the output service.
+ In the opinion of this court, clearly goods in question have gone into the making of such towers which in turn are used for providing infra-support service/ telecom service. It is therefore, held that the CESTAT erred in applying the nexus test and, therefore, credit has to be extended to the duty paid MS angles and channels.
| iv) Whether the Appellants were justified, in terms of Rule 4 (1) of the Credit Rules, in claiming CENVAT credit of excise duty paid by the manufacturer of towers and shelters after receipt of such towers and shelters at their premises (i.e. tower sites)? |
+ The definition of “input? does not contain any condition relating to emergence of immovable property to be ineligible for taking credit.
+ The eligibility of credit must be determined at the time of receipt of the goods in terms of Rule 4(1) of the Credit Rules. Credit cannot be denied so as long as the goods are used for the provision of the output service. [ Mundra Ports and Special Economic Zone Ltd . 2015-TIOL-1288-HC-ST relied upon]
+ The towers which are received in CKD condition are assembled/erected at the site subsequently giving rise to a structure that remains immovable till its use because of safety, stability and commercial reasons of use.
+ The entitlement of CENVAT credit is to be determined at the time of receipt of goods. The fact that such goods are later on fixed/ fastened to the earth for use would not make them a non-excisable commodity when received.
| v) Whether the emergence of immovable structure at an intermediate stage (assuming without admitting) is a criterion for denial of CENVAT credit? |
+ Several High Courts in different contexts have taken a view that credit of excise duty and service tax paid would be available irrespective of the fact that inputs and input services were used for creation of an immovable property at the intermediate stage, if it was ultimately used in relation to provision of output service or manufacturing of final products.
+ The conclusion of CESTAT, denying the assessee CENVAT credit on the premise that the towers erected result in immovable property, is erroneous and plainly contrary to Solid and Correct Engineering ( supra ). The towers that are received in CKD condition, are erected at site, subsequently, giving rise to a structure that remains, safe and stable (commercial reasons of use).
+ The fact that in the intermediate stage, an immovable structure emerged, is of no consequence, in the facts of the present case. It is a settled principle of law that entitlement of CENVAT credit is to be determined at the time of receipt of the goods. If the goods that are received qualify as inputs or capital goods, the fact that they are later fixed/fastened to the earth for use would not make them a non-excisable commodity when received.
+ The CESTAT failed to consider the fact that in the event antennae and BTS are to be relocated, the assessee also has to relocate the tower and the pre-fabricated shelters, thereby, implying that the towers and the pre-fabricated shelters, are not immovable property.
All the questions of law were answered against the Revenue and in favour of the assessee/appellants.
The appeals filed by the assessee's were allowed and those by Revenue were dismissed.
(See 2018-TIOL-2409-HC-DEL-ST)
