Mobile Towers & Pre-Fabricated Buildings Moveable Properties, Qualify As 'Capital Goods' For CENVAT Credit : Supreme Court

The Supreme Court in a recent decision held that mobile service providers (MSPs) could avail the benefit of Central Value Added Tax/CENVAT Credit over excise duties paid on items such as mobile towers and prefabricated buildings. The bench of Justice BV Nagarathna and Justice N Kotiswar Singh observed that since mobile towers and PFBs could be detached and relocated, they qualified as movable properties and accessories in enhancing the functionality of the mobile service antenna attached on top of the tower. Thus, the items qualified as 'capital goods' or 'inputs' which were indispensable to provide effective mobile services (output) and MSPs can get a credit set-off on these items. The main issue considered by the Court was whether the Mobile Service Providers (MSP) could claim CENVAT Credits for the duties they paid on resources like tower part, shelter, prefabricated buildings (PFBs)In considering so, the bench examined whether tower part, shelters etc come within the ambit of 'capital goods' or 'inputs' under the Central Value Added Tax/CENVAT Credit Rules, 2004 and whether 'capital goods' would encompass towers. What Is The CENVAT Credit Scheme? Under the scheme, the manufacturers get the benefit of set-off when certain inputs are used to complete their final product. Under the CENVAT Credit Rules, several 'input' items are enlisted to avail the credit, with each 'input' item being defined under the Rules. An example of such input goods would be - the engine parts , glass or metal used in manufacturing of a car. Notably, Rule 3(1) of 2004 Rules allows a provider of taxable service to claim CENVAT credit paid on any “capital goods” or “input” received in the premises of the service provider. The terms 'capital goods' or 'input' have been defined under Rule 2(a)(A) and Rule 2(k) which is discussed in detail below. What Led To The Present Dispute? The appellant Bharti Airtel (MSP) was served a show cause notice on April 25, 2006 by Commissioner of Excise alleging that appellant had wrongly taken and utilised CENVAT Credit on certain goods which do not qualify as “capital goods” within the meaning of CENVAT Credit Rules, 2004 and thus, availing such credit was contrary to the definition under Rule 2(a)(A) and Rule 4 of the CENVAT Rules. The goods mentioned in the said show cause notice include amongst others: (i) towers and parts of towers; (ii) prefabricated building (PFB) used as a shelter for protecting transmission devices which are the primary concern of these proceedings.The Commissioner had also imposed penalties while noting that items like tower, antenna, prefabricated building (PFB) etc. have independent and definite functions and cannot be treated as a single integrated unit and accordingly, these items/goods cannot be treated as capital goods and CENVAT credit cannot be allowed. The Revenue held that only equipment like BTS, transmitter, antenna which are used in providing telecom service and which are covered under various Chapters under Rule 2(a)(A) are eligible for CENVAT credit vide order dated 19.12.2006 of the Commissioner of Excise/Revenue.The said order was then challenged before the CESTAT in appeal along with another order of the revenue for recovery of the penalty amount. The CESTAT however, upheld the decision revenue orders. The decision then travelled in appeal before the Bombay High Court. The High Court in its order dated 26 August 2014 also upheld the decision of the revenue authorities. The Bombay High Court was of the view that as per the definition clauses in CENVAT Rules - the items concerned that is tower and parts because of being fastened and fixated to the earth after their erection became immovable properties and could not come under the definition of 'capital goods'. The towers and other parts in completely knocked down condition (CKD) or semi-knocked down condition (SKD) would fall under Chapter Heading 7308 of the Central Excise Tariff Act, but the aforesaid heading is not specified either in clause (i) or clause (ii) of Rule 2(a)(A) of the CENVAT Rules to be treated as “capital goods”.Notably, heading 7308 of the Central Tariff Act covers structures and parts made out of iron or steel excluding PFBs. As per Rule 2(a)(A) capital goods means (unless the context otherwise requires)- "(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, grinding wheels and the like, and parts thereof falling under [heading 6804 and wagons of sub-heading 860692]] of the First Schedule to the Excise Tariff Act;(ii) pollution control equipment; (iii) components, spares and accessories of the goods specified at (i) and (ii); (iv) moulds and dies, jigs and fixtures; (v) refractories and refractory materials; (vi) tubes and pipes and fittings thereof; (vii) storage tank, [and] [(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis [but including dumpers and tippers], used - (1) in the...

Mobile Towers & Pre-Fabricated Buildings Moveable Properties, Qualify As 'Capital Goods' For CENVAT Credit : Supreme Court

Anmol Kaur Bawa

Tags